Pemex Bonds: A Closer Look at Mexico’s Oil GiantPetróleos Mexicanos, commonly known as Pemex, is Mexico’s state-owned oil and gas company and a cornerstone of the nation’s economy. Fully owned by the Mexican government, Pemex extracts oil from the northeast, southeast, and the Gulf of Mexico regions. But the company faces a challenge, it’s a massive debt load nearing $90 billion, making it one of the most indebted oil companies globally. Despite this, its bonds-particularly those maturing in 2027-may garner attention due to their government-backed stability and attractive yields.
Pemex: A Debt-Heavy Giant with Government Support
Pemex’s financial landscape is dominated by its substantial debt, accumulated through bond issuances dating back to the 1990s and continuing with more recent offerings. This debt, totaling approximately $90 billion, places a heavy burden on the company, with interest payments consuming a significant portion of its revenue. Despite this, Pemex manages to stay afloat, largely due to robust support from the Mexican government.
In recent years, the government has intensified its efforts to bolster Pemex. Under President Claudia Sheinbaum (assumed office in 2024) a comprehensive support program was established, providing tax breaks, payment deferrals, and annual financial assistance of $7-8 billion. For 2025, the government has allocated $6.7 billion to cover most of Pemex's $8.9 billion in debt maturities for the year. However, Fitch estimates that Pemex will face a $75 billion cash shortfall between 2025 and 2027, in addition to $20 billion in maturities during that period. The aid helps Pemex cover its debt obligations and maintain operational stability. The company’s status as a state-owned entity also offers a unique safeguard: under Mexican law, Pemex cannot declare bankruptcy, so it must either meet its debt payments or restructure them, reducing the risk of default.
Financially, Pemex’s performance has been inconsistent. In 2023, it achieved a 7% increase in net profit compared to 2022, buoyed by favorable oil prices. However, 2024 brought losses that erased those gains, exacerbated by declining oil prices. Despite these setbacks, Pemex maintains a competitive production cost of $18 per barrel, though debt servicing-accounting for about 8% of this cost-cuts into its profitability. By comparison, peers like Brazil’s Petrobras NYSE:PBR and Colombia’s Ecopetrol NYSE:EC have lower debt burdens but similar production costs.
The Case for Pemex Bonds
As of June, these Pemex bonds (APR 2027) with 2.75% bond-trade at 94.482% of their face value, offers a yield to maturity of approximately 7%. Among Pemex’s numerous bond issuances, the 6.49% bond maturing on January 23, 2027 (ISIN: USP78625DW03), stands out as a noteworthy option. For today’s June, this bond trades at 99% of its face value, offering a yield to maturity of 7.2%. This yield, with its bond’s relatively short remaining term and government backing, makes it an appealing option for conservative investors who look for a balance of safety and return.
The stability of these bonds is reinforced by Pemex’s legal protections and the government’s commitment to its survival. In late 2024, Pemex’s credit rating was affirmed at B+ with a stable outlook, that contrasts with its prior negative outlook, illustrating the influence of state intervention. Pemex's rating remains four notches below Mexico's sovereign rating, which underlining the company's financial vulnerabilities. Bonds maturing in 2027 trade close to their nominal value (around 99%), while longer-dated bonds (e.g., 2030 and 2035) trade at steeper discounts of 88–90%, indicating greater uncertainty over extended periods.
Bond Price Performance: From Turmoil to Recovery
The price history of the Pemex 2.75% bond maturing on April 21, 2027, shows a picture of its resilience.
2019: The bond began at around 92.000, experiencing minor volatility but stabilizing by year-end.
2020: At the beginning of the year, there was a sharp drop to 64,000, all due to the impact of the pandemic. COVID-19 significantly undermined global markets back then and Pemex was no exception, followed by a gradual recovery to 80,000.
2021-2022: The price fluctuated between 76.000 and 84.000, reflecting market uncertainty but maintaining relative stability.
2023-2025: A clear upward trend emerged, with the price rising from 84.000 in late 2023 to 94.843 by June 2025.
The recovery aligns with Pemex’s improved credit outlook and government support, demonstrating to us twice again the bond’s ability to rebound from lows and approach its nominal value as maturity nears.
Risks to Consider
While the 2027 bonds offer compelling features, they aren’t risk-free. Pemex’s $90 billion debt remains a long-term challenge, unlikely to decrease significantly in the next decade. The company’s financial health is also tied to volatile oil prices, as seen in 2024’s losses. Government support is strong right now, but political or economic shifts could alter this dynamic, though no immediate threats on the horizon are apparent.
Also in addition to financial risks, active market participants should consider Pemex's environmental, social, and governance (ESG) challenges. The company has faced multiple incidents- there where several fires at critical assets in 2023 and 2024, raising from it concerns about operational safety and environmental impact. Then, these events have led to injuries, fatalities, and potential ecological damage, earning Pemex an ESG Relevance Score of '5' in several categories from Fitch. The company's track record in waste management, GHG emissions, and employee wellbeing is a concern that may affect its ability to raise capital and maintain people’s confidence.
The 2027 bonds present a lower-risk option compared to longer maturities. The shorter timeline reduces exposure to uncertainties, and the 7% 7.2% yield to maturity provides a solid return for the remaining 1.5 years.
A Conservative Investment Opportunity
The Pemex 2.75% bond maturing on 2027 may offer to us a cautious yet attractive opportunity. Backed by the Mexican government and protected from default under local law, it offers relative safety and 7.2% yield to maturity. Its price recovery from 2020 lows to 94.482 by June 2025 reflects the market's trust in Pemex's stability despite its substantial debt. For people, who comfortable with moderate risk, the 2027 bonds provide a balanced investment option. However, potential investors should weigh the company’s long-term debt challenges, oil price dependency, and ESG risks first.
