High oil prices support Pemex's debt profile

Pemex's revenue and EBITDA (BBB / Ba2 / BB-) continue to recover and are showing consistent growth on the back of higher oil prices and increased demand for refined products. The company reports strong 1H21 results in the refining and distribution segment, which is mainly due to an increase in the refinery's capacity utilization rate, which has led to an improved profitability. From a regional point of view, the domestic market and the export of petroleum products performed better in 1H21 than the export of oil. Consolidated revenue for 1H21 amounted to $ 33 billion, up 43% year-on-year, and EBITDA increased to $ 9.2 billion, which is almost three times higher than last year.

At the end of June, Pemex had $ 2 billion in cash and $ 6 billion in undrawn credit lines. The debt repayment schedule looks even. We welcome the additional steps taken by Mexico to structurally reduce the tax burden on Pemex. At the end of this year, Pemex will receive additional state financial support in the amount of $ 6-10 billion. The government also announced additional tax breaks for 2021 in the amount of $ 3.5 billion in addition to the expected decrease in DUC from 58% to 54%. In addition to this, the company should receive capital injections from the state in the amount of up to $ 5 billion. Pemex should also receive funds from the state to service its debt this year, but the amount of support has not yet been disclosed. Until the end of this year, Pemex does not plan to enter the primary Eurobond market.

The yield on Pemex Eurobonds is the highest among the quasi-sovereign bonds of the global oil and gas sector. We believe that the recovery in the oil market will continue to support Pemex's business profile and that the company can fully rely on government financial support to maintain adequate liquidity and meet its obligations in full on time. On the Pemex yield curve, the dollar issue with maturity in February 2028 (US71654QCK67) looks attractive. The security offers a yield of 5.4% per annum with a duration of 5.4 years. Among Eurobonds denominated in euros, the issue with maturity in April 2027 (XS1172951508) looks attractive. The bond is trading at 4.1% with a duration of 5.3 years.

Stated-owned Petroleos Mexicanos operates as an oil and gas exploration and production services. The Company offers pipeline carriage, petrochemical distributor and shipping centers, logistics, and fuel commercialization services. Petroleos Mexicanos serves customers in Mexico.