BBVA lends 4,772 million euros to indebted Mexican oil company Pemex
BBVA bank accumulated 115,000 million pesos (4,772 million euros) worth of loans between January and September to Pemex, the Mexican oil company whose financial debt is considered a "junk bond" by Moody's and Fitch, two of the three main rating agencies.
BBVA Bancomer, its subsidiary in Mexico, is the main creditor bank of Pemex, by granting 91% of the 126,400 million pesos of loans that were used for investment projects and debt refinancing during the first nine months of the year, according to a preliminary report of the third quarter published by the Ministry of Finance of Mexico.
The public oil company contracted another 4,000 million pesos (166 million Euros) from Banco Inbursa, the financial arm of Grupo Carso, the conglomerate of Mexican magnate Carlos Slim.
On the other hand, the Mexican government maintained 3.869 billion (160.5 million Euros) in loans from BBVA Bancomer during the same period, while the public energy company CFE received some 3 billion pesos in loans from the subsidiary of the Spanish bank. Banco Santander, for its part, lent 1.5 billion pesos to the CFE between January and September 2020, a period that includes the crisis caused by the Covid-19 pandemic.
Mexico will be one of the hardest hit economies in the world, with a projected 9% drop in GDP in 2020, according to the International Monetary Fund. The Mexican peso has depreciated by 14.3% from January to mid-November. One euro is currently exchanged for about 24.06 pesos.
Mexico accounts for 44.9% of BBVA's net attributable profit. Between January and September, BBVA Mexico reported a net attributable profit of 1.204 billion euros between January and September, 38.7% less than the 1.965 billion recorded for the same period in 2019.
Pemex: the most indebted oil company in the world with a 'junk bond' rating
With more than $100 billion in debt, Pemex is the most indebted oil company in the world. Due to its complex financial situation, its credit rating is 'BB' for Fitch and 'Ba2' for Moody's, two notes that are part of 'speculative grade', usually known as 'junk'. The only one of the three rating agencies that gives it an 'investment grade' is Standard & Poor's, with a 'BBB' rating.
Companies with 'speculative grade' face higher financing costs, as there is a higher risk of default. In that sense, Pemex placed one month ago 1.5 billion dollars in bonds at 6.95% and 7%, a high interest rate that shows the distrust of investors in the oil company managed by the Mexican government of Andres Manuel Lopez Obrador.
Pemex produced 1,643 million barrels of oil (bpd) in September, slightly less than the 1,710 million bpd it was extracting in December 2018, when López Obrador's term began. However, the figure is far from the 3.4 million bpd of 2004, when it reached its historical maximum.
The stagnation of production, together with low oil prices, makes the government receive less income from Pemex, which also puts pressure on Mexico's sovereign bond rating. All three agencies still give Mexico an investment grade, but the current notes are very close to 'speculative grade' and the sovereign could eventually be rated 'junk'.
If Mexico enters into speculative territory, the ratings of the subsidiaries of Spanish companies in the country will also be affected. In this regard, BBVA and Santander are the two largest banks in Mexico and control approximately 40% of all assets in the financial system, while companies such as Iberdrola or Naturgy have significant investments in the energy sector.
During 2020, the subsidiary BBVA Mexico made a debt issue in February for 15 billion pesos in three tranches and another in September for 500 million dollars in 5-year bonds at a rate of 1.875%. "This is the lowest ever for a financial institution in Mexico," states the Bilbao bank in its financial report for the third quarter of 2020.