The Long and Short
PEMEX pathway to new US dollar bonds
This material is a Marketing Communication and does not constitute Independent Investment Research.
The MX$250 billion facility set up to address Pemex’ ballooning working capital needs has been largely used with about MX$190 billion deployed as of the end of 2025. Suppliers that participated exchanged their receivables for 8-year debt that begins accruing interest in 2026 and amortizing in 2027. Pemex pays a spread of 185 bp over local rates to the facility, an attractive level given it is guaranteed by the federal government. This should enable Pemex to report lower working capital at fiscal year-end. And since the obligation is not financial debt, the supplier liability reclassification does not impact reported balance sheet debt. The interest expense, however, does comingle with the financing costs of the overall balance sheet. The remaining MX$60 billion in vehicle capacity is expected to be used in 2026 and the trust may be expanded, given strong demand by participants.
The trust, together with the P-Caps and additional equity injections by the sovereign has positioned the credit to end 2025 with a reported debt reduction of about $15 billion in the fourth quarter. Pemex is also positioned to navigate 2026, with the approximate $13 billion in remaining amortizations scheduled to be met by Hacienda. Further, Pemex may conduct incremental liability management, such as the recent peso issue, to free up incremental capital to fund operational cash shortfalls.
There are presently no formal plans to access the US dollar market; though with the 10-year point on the curve currently in the low 7% area, we are close to levels that could trigger opportunistic access. Presently, there are no material maturities scheduled in the 2036 to 2037 points on the amortization schedule and we expect that a US dollar issue could accompany more MXN refinancing during this year. At present, the company is in blackout for USD issuance; this ends on May 29.
Operationally, the JV strategies continue to evolve with 21 separate contracts under consideration: five are transitioning to operational states, five have agreements in place but have yet to initiate process and the remaining are in negotiation. We note that the more recent JVs will contain shallow and deep-water production options. Approximately $3 billion of the total approximate $11 billion in planned 2026 capex is expected to be met by JV partners; however we expect that at least some of this will miss a 2026 timeline. Initial expectations is for the portfolio of JV to add up to 150,000 bpd by 2028 and then to scale up each subsequent year, peaking at 450,000 bpd by 2033. While a ramp to add 25% of current production in less than eight years has its skeptics, even a minimal (10% of existing production) would be met positively, given the negative trend in operations this century.
Pemex reports fourth quarter 2025 results on February 27 and like many of the recent periods, operational data are not likely to be key drivers in spread performance. Confirmation of sovereign support has created a solid foundation for spreads and Pemex has resumed its role as a beta vehicle for many, particularly crossover, investors. Ratings actions are not likely to be imminent, so technical drivers are not anticipated to be near-term drivers for performance either. The market overall feels well priced, corralling the Pemex beta aspect, though rate reductions later in the year could pull Pemex yields into new issue territory, which would create some incremental price action. The curve is once again steep, though bull flattening would require company level outperformance (unlikely) or improved interest rate comfort in the market (also unlikely). To that end, though already priced well, the front end of the curve remains attractive and we await the opportunity to gather new issue premia when Pemex returns to the dollar market.
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