Pemex signs US$8b syndicated loan with banks

[MEXICO CITY] Embattled Mexican oil producer Petroleos Mexicanos signed an US$8 billion syndicated loan, the biggest in its history, as part of a plan unveiled by President Andres Manuel Lopez Obrador to regain investor confidence.

JPMorgan Chase & Co, HSBC Holdings Plc and Mizuho Financial Group Inc are leading the transaction and representatives of the firms signed the agreement at a ceremony in Mexico City on Monday alongside Lopez Obrador, Pemex Chief Executive Officer Octavio Romero and Finance Minister Carlos Urzua. The interest rate of the loan is Libor plus 235 basis points.

The support measures also include further tax breaks to be signed this week and the refinancing of US$2.5 billion in current debt, as well as replacing US$5.5 billion in existing credit lines. The company has struggled to reverse production declines for over a decade and reduce the weight of US$106.5 billion in debt, and has largely failed to present a convincing business plan to investors since Lopez Obrador won the presidency last year.

Lopez Obrador said that the rescue plan would guarantee liquidity for the company and improve lending terms without adding to the debt load. The measures represent a win for the government after five months of negotiations, though the full terms of the financing accords have yet to been made public.

"This demonstrates the confidence that there is in Mexico and the government," said Lopez Obrador. "The banks are showing confidence, and we thank them."

The administration was widely criticised by investors last week for a plan to build a new US$8 billion refinery in Lopez Obrador's home state of Tabasco, which critics said would add very little value.

Pemex bonds erased earlier losses in the day after the announcement.

Finance Minister Urzua said at the conference that Pemex's ability to operate was restricted by a high tax burden, and that further tax breaks would brighten the company's outlook.

"For a long time we've been milking the little cow," Mr Urzua said. "Little by little the government will reduce the tax load to Pemex."

The new support measures are aimed at reassuring investors amid concerns about another possible downgrade either to the company's bonds or to the Mexican sovereign rating. Fitch Ratings cut Pemex's score by two levels this year to BBB-, the lowest notch in the investment grade category.

BLOOMBERG