EM LATAM CREDIT: Pemex: Long-Term Plan - Neutral

(PEMEX; B3neg/BBB/B+)

"*MEXICO TO PRESENT PEMEX PLAN 'VERY SOON': SHEINBAUM
*PEMEX IS RESOLVING IT'S DEBTS WITH SERVICE PROVIDERS: SHEINBAUM
*IF CORRUPTION IS FOUND IN PEMEX, WE WILL ACT ON IT: SHEINBAUM" - Bbg

Possible that these latest comments from the Mexican president are a reaction to articles published today and yesterday in local news outlet El Universal that discuss complaints and allegations made by Mexican employers union COPARMEX regarding payments owed to suppliers. Clearly the suppliers are anxious to get a resolution to getting paid.

Mexico's President Claudia Sheinbaum announced June 25th that the government would present a "transformative" plan for Pemex in the coming weeks. We think at the heart of this long term plan is a way to pay suppliers so they continue current production and not stop working, as they have threatened, as well as raise production by bringing rigs online that were halted due to lack of resources.

We posted about we think might be in that plan based on an article in local news outlet El Pais as well as anecdotal evidence like the news articles published in El Universal about continued pressure coming from suppliers to get paid. Please see our previous post for more information:
https://mni.marketnews.com/44JXkgs

We think there is a possibility the government issues Pemex debt guaranteed by the government to finance the debt repayment to suppliers. Rating agencies to some extent already have factored into Mexico ratings the Pemex contingent liability anyway though they may react further if this hypothesis becomes reality.

This should be perceived as positive for existing Pemex debt as it shows further support from the government and a step towards raising production to the point that the entity becomes more self-sufficient and eventually able to come to the market independently to refinance its debt.

Sheinbaum is on the right track if the financing can be lined up as paying off suppliers and making the payment scheme more efficient may allow more rigs to come on line and increase production towards the administration's goal of 1.8mn b/d up from the current run rate of 1.6 b/d.

Pemex 35s were last quoted T+453bp, 100bp tighter since March 31st and 80bp tighter YTD. We have seen about a 50bp tightening since the June 25th announcement of a forthcoming long-term plan.