(Bloomberg) -- Mexico plans to use about $7 billion from a rainy day fund to pay ballooning debt obligations at its state-owned oil company Pemex over the next 18 months, Deputy Finance Minister Arturo Herrera said in an interview.
The plan is to turn the Oil Revenue Stabilization Fund, known as FEIP, into a fund that can be used as needed. Half of the 280 billion pesos would go to service Pemex debt obligations and the other half to a counter-cyclical fund to be used during recessions, Herrera said at the Acapulco banking convention.
The funds may go to prepay Pemex debt, after originally being considered to prepay sovereign debt, Herrera told El Financiero Bloomberg TV in a separate interview.
“This will translate into enormous tranquility for the markets, because they’ll know that Pemex payment obligations over a bit more than a year will have resources that already exist,” Herrera told El Financiero Bloomberg TV.
Pemex is the world’s most indebted oil major, owing about $108 billion. That led Fitch Ratings to lower its credit rating by two notches in January to the brink of junk. President Andres Manuel Lopez Obrador has attempted two rescue packages, but neither has convinced markets. This third attempt will be presented in about two weeks, Herrera said.
The measures have “bought Pemex some time” to avoid a further downgrade from credit ratings agencies, but they fail to address the root causes of its ballooning debt, said Luis Maizel, a senior managing director of LM Capital Group in San Diego. “The expectation was for more than this, and a plan to save Pemex.”
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