Bondholders Give Pemex Benefit of Doubt After $32 Billion Loss

Bond investors are giving Mexico’s struggling state oil company the benefit of the doubt.

On Monday, Petroleos Mexicanos reported a record $32 billion loss for 2015 as production continued to falter and a freefall in oil prices deepened. Yet $41.2 billion of bonds from the company tracked by Bloomberg have gained, returning 3.9 percent since the government said on Feb. 17 it will cut 100 billion pesos ($5.6 billion) from the oil giant’s budget this year. That’s compares with a 2.4 percent average return in emerging markets.

Bondholders are betting that Pemex’s unprecedented spending cuts will pave the way for the government to make good on its pledge to provide financial support to the company and help restore its finances, said Luis Manuel Abello, who helps manage $7.5 billion at Actinver SAB. On Monday, Deputy Finance Minister Miguel Messmacher said Pemex was taking appropriate steps to ensure government support.

The comment came a month after Finance Minister Luis Videgaray said Mexico is considering pumping cash into the company, a show of support that helped Pemex raise $5 billion in overseas bond markets a day later.

“It’s good news for Pemex and what can happen in the future,” said Abello,
who owns Pemex bonds. “We’re convinced that the federal government won’t just be helping Pemex with words.”

“The measures taken to adjust the budget were made to align Pemex with the reality that we are observing in the global oil sector,” Pemex’s press office said in a statement. Moreover, the aim is to strengthen Pemex without compromising on its commitments.

The peso advanced 0.9 percent to 17.7658 per dollar at 11:52 a.m. in Mexico City.

To contact the reporters on this story: Ben Bain in Mexico City at bbain2@bloomberg.net, Adam Williams in Mexico City at awilliams111@bloomberg.net. To contact the editors responsible for this story: Rita Nazareth at rnazareth@bloomberg.net, Michael Tsang at mtsang1@bloomberg.net, Lester Pimentel, Robert Jameson

By: Ben Bain and Adam Williams

©2016 Bloomberg News