Exclusive: Mexico rainy-day fund may reduce Pemex debt refinancing this year

ACAPULCO, Mexico (Reuters) - Mexico’s finance ministry is exploring possibilities to reduce the costly refinancing of ailing state oil company Pemex’s debt this year, including dipping into a budget stabilization fund, Finance Minister Carlos Urzua said on Friday.

FILE PHOTO: Mexico's Finance Minister Carlos Urzua listens as President Andres Manuel Lopez Obrador (not pictured) speaks to the media during a news conference to announce a plan to strengthen finances of state oil firm Pemex, at the National Palace in Mexico City, Mexico February 15, 2019. REUTERS/Henry Romero

Urzua told Reuters in an interview that Pemex’s weak credit rating could make it “very costly” to refinance the more than $6 billion of payments that are due this year.

“It could be costly, very costly to refinance the debt that matures this year,” Urzua said, citing foreign and domestic investor fears about Pemex’s credit rating, which is one notch above junk, and the perception of risk about the company.

Holding more than $106 billion in financial debt, Pemex owes more than any other oil company in the world, both private and state-owned, that file reports with the U.S. Securities and Exchange Commission.

The finance ministry and Pemex are considering ways to reduce the amount that needs refinancing, Urzua said, but are conscious that Mexico risks damaging its sovereign ratings if government support goes too far.

“We don’t know how much would be optimal, it would not necessarily be a case of helping them with all of it,” he said.

“If this rescue is perceived as a weakening of the federal government, of the sovereign debt, then it could have repercussions in the sovereign debt, and that is something that we definitvely do not want.”

Urzua confirmed comments by his deputy finance minister this week that one option would be to dip into Mexico’s Public Income Stabilization Fund, although he said a final decision had not been taken.

“We could take a certain amount that helps with the debt servicing in a one-off manner,” he said.

In an interview with Reuters, Central Bank governor Alejandro Diaz de Leon said the company’s financial situation was a risk factor that affected Central Bank policy decisions and should be attended to, but declined to comment on the finance ministry’s plans for Pemex.

However, he said it was “very important” that the government meet its target of a 1 percent primary budget surplus this year.

Reporting by Stefanie Eschenbacher and Dave Graham; Editing by Chizu Nomiyama and Rosalba O’Brien