Mexico to cut Pemex tax bill, banks to refinance debt to ease woes

MEXICO CITY (Reuters) - The Mexican government on Monday announced measures to ease state oil firm Pemex’s debt woes, including $2.5 billion in debt refinancing plus the renewal of credit lines with three banks and a gradual tax cut.

FILE PHOTO: A view of the headquarters of state owned oil company Pemex in Mexico City, Mexico March 5, 2019. REUTERS/Daniel Becerril/File Photo/File Photo

The measures include two extended lines of credit with the banks worth up to $5.5 billion, according to a Pemex statement issued shortly after the announcement.

Mexican President Andres Manuel Lopez Obrador said during his regular morning news conference that the agreement lengthens by two years what had been a three-year revolving line of credit. He made the announcement flanked by executives from JPMorgan Chase & Co, HSBC Holdings Plc and Mizuho Financial Group Inc.

Lopez Obrador and the bank officials signed the agreement shortly after the announcement.

“This is a fund that will be used if necessary, depending on the circumstances,” said Lopez Obrador, referring to the line of credit.

“We are determined to back up Pemex, to support Pemex,” he said, adding that he was appreciative of the lenders’ vote of confidence in Pemex and the government.

Lopez Obrador has pledged to revive Pemex, whose $106 billion in debt is the largest for any oil company in the world. Its oil output has declined by about half over the past 14 years.

The interest rate on the credit line is Libor plus 235 basis points. Using the three-month Libor, the rate would be 4.868% based on Monday’s 3-month fixing at 2.518%, according to Reuters data.

The government package includes a gradual tax reduction, estimated by the president at more than $1.5 billion (30 billion pesos).

Pemex Chief Executive Officer Octavio Romero told reporters that an agreement had been reached with the three banks to refinance $2.5 billion of the company’s debt this year.

The extended line of credit totals $5.5 billion and together with the refinancing amounts to the oil firm’s biggest bank operation in its history, according to Pemex.

Finance Minister Carlos Urzua said current oil and gas exploration and production assets that were given by the government to Pemex will get more favorable tax terms.

Urzua said the contract migrations will cover projects that produce a total of 400,000 barrels per day, up from 150,000 bpd previously permitted.

Reporting by David Alire Garcia and Adriana Barrera; Editing by Steve Orlofsky and Jeffrey Benkoe