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Financial institutions reject Pemex rescue plan as ‘insufficient, disappointing’

Company's credit rating still at risk, analysts warn

Financial institutions have rejected the federal government’s 107-billion-peso (US $5.5-billion) rescue plan for Pemex, describing it as insufficient and disappointing, while Fitch Ratings warned that it doesn’t insulate the state oil company against future cuts to its credit rating.

President López Obrador announced yesterday that Pemex will receive a cash injection, its tax burden will be reduced and it will be cleansed of corruption as part of the strategy to reduce the company’s financial burden and strengthen its capacity to invest in exploration and production.

“Those who bet on the failure of Pemex now have a position of skepticism, saying that we won’t be able to [rescue the company], that there is too much debt and that we’re not going to make a success of it. I accept the challenge! We’re going to make a success of Pemex,” López Obrador declared.

The banks BBVA Bancomer, JP Morgan and Citibank didn’t share the president’s optimism.

Bancomer said the measures announced by the government don’t resolve Pemex’s structural problems, contending that the plan buys the company some time but its credit rating remains at risk.

The bank’s chief economist, Carlos Serrano, and senior economist Arnulfo Rodríguez both said that significantly more money needs to be invested in Pemex, which has a debt in excess of US $100 billion.

They contended that the government’s previously announced funding of 273 billion pesos (US $14.1 billion) for Pemex this year should be doubled, and that the funds should mainly be directed to exploration and oil production, which has been declining for years.

As the funds would have to come from the public budget, the economists conceded that additional investment could place pressure on Mexico’s sovereign rating but said that was preferable to seeing a reduction of Pemex’s credit rating to below investment grade.

Bancomer also questioned the oil company’s strategy to channel investment to shallow water and land projects to the detriment of deep water drilling as well as the plan to build a new refinery on the Gulf of Mexico coast in Tabasco.

“The era of easy petroleum in Mexico has come to an end,” it said in a statement. “Moreover, investment in refining projects shouldn’t be increased given the large historical losses in that activity.”

JP Morgan and Citibank both said that the bailout is insufficient and contended that the government doesn’t have an adequate diagnosis of Pemex’s problems.

“We are extremely disappointed with the measures,” said Julie Murphy, a Latin America analyst at the former bank, explaining that the rescue plan will do little to shore up Pemex’s standing with ratings agencies.

Citibank said it doubted that Pemex would become more efficient and profitable as a result of the measures announced and suggested that the company needs help from the private sector to recover.

Meanwhile, Fitch said that the rescue package “would likely not be enough to prevent continued deterioration in the company’s credit quality.”

The ratings agency said the support is much less than the $12 billion to $17 billion of additional annual cash requirements it estimates Pemex needs to halt declines in production and reserve levels.

Fitch downgraded Pemex’s credit rating to one level above junk late last month, citing the company’s “substantial tax burden” and “high leverage” among other problems.

In a statement issued yesterday, it said it had already taken tax relief measures into account when it cut Pemex’s credit rating on January 29.

Source: Milenio (sp) 

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