(Bloomberg) -- Mexico’s government granted state-owned Petroleos Mexicanos billions of dollars in taxes relief, days after the debt-ridden company received a double-credit downgrade at Moody’s Investors Service.
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President Andres Manuel Lopez Obrador on Tuesday published a decree that removed so-called DUC levies on Pemex for the four months through January. The ruling saves the company about 115 billion Mexican pesos ($6.7 billion) from October 2023 to January, according to an official with knowledge of the matter who asked not to be named because they are not authorized to speak to the media.
The tax relief is the latest aid for Pemex provided by Lopez Obrador, known as AMLO, who has made the revival of the company one of the central platforms of his government, which ends this year. Moody’s had cut the oil producer deeper into junk territory Friday, warning it could face a distressed debt exchange without continued government support.
Pemex bonds held steady even after faster-than-expected US inflation damped bets on the pace of Federal Reserve interest rate cuts. The extra yield that investors demand to hold Pemex 2060 bonds over comparable sovereign bonds narrowed 17 basis points to 4.74%.
Read More: Pemex Bonds Fall as Moody’s Downgrade Underscores Debt Angst
The fresh aid comes on top of unprecedented budgetary support for Pemex this year. The oil driller’s debt has rallied since late 2023 when AMLO explicitly put 145 billion Mexican pesos ($8.5 billion) in the fiscal budget to help the company meet debt payments, after years of ad hoc capital injections and tax breaks to support the driller. The 2024 budget also further lowered the DUC.
The government has not presented a longer-term plan for reducing the company’s debt burden. Moody’s analysts wrote in their rating downgrade on Friday that they expect free cash flow and credit metrics to worsen in the next three years. They added that they see potential for a distressed debt exchange.
Read More: Mexico’s Next Leader Will Inherit Oil Giant’s $106 Billion Debt
--With assistance from Carolina Gonzalez.
(Corrects estimated amount of savings in paragraph two.)
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