(Bloomberg) – Mexican President Andres Manuel Lopez Obrador could be on the verge of paying a titanic bill for the world’s most indebted oil producer.
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Petroleos Mexicanos chief executive Octavio Romero told lawmakers on Wednesday that the federal government would take responsibility for its bond payments, leading to a sharp rise in the beleaguer’s ratings. Pemex has around $ 36 billion in debt maturing when Lopez Obrador’s tenure expires in September 2024, according to data compiled by Bloomberg.
Romero’s comments were light on the details, and the Finance Ministry and the president’s office declined to give details of the guarantee or even support the idea of what Romero said. While it has always been implicitly understood that the government would save Pemex if it needed to, Romero’s comments come close to suggesting that support is the official policy of that administration.
Traders recovered the bonds following Romero’s comments, betting that an explicit government guarantee made Pemex debt much more attractive. Notes maturing in 2031 cemented their best two-day gain since March as they climbed to 99 cents on the dollar, and credit default swaps and spreads against equivalent U.S. Treasuries tightened on Thursday. .
“It’s more of the same thing, more government support for Pemex,” said Edwin Gutierrez, fund manager at Aberdeen Asset Management in London, which owns Pemex bonds. “This is why we continue to appreciate Pemex for dominant spreads against the Mexican sovereign.”
Still, Gutierrez said he wouldn’t read Romero’s comments too much just yet, adding that the government’s approach will continue to be piecemeal.
“These were just a few improvised remarks he made,” Gutierrez said. “They will pay what they think they can afford to pay.”
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