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Mexico Gives $4.2b Liquidity Boost to Pemex Finances

Source: Reuters 4/13/2016, Location: South America

Mexico's finance ministry announced a series of measures to improve national oil company Pemex's ailing finances, giving it a 73.5 billion peso ($4.2 billion) liquidity boost.

That includes a capital injection of 26.5 billion pesos and a credit facility for a further 47 billion pesos to pay down pension costs this year. As a condition of accepting the government support, the company must reduce its liabilities by a total 73.5 billion pesos.

The support also includes tax breaks that will allow Pemex to deduct more of its exploration and production costs.

Mexico's oil output has slid for 11 consecutive years while crude prices have fallen about 70 percent since 2014, both of which have battered public finances.

The federal government's support for Pemex was made possible by previously announced budget cuts in February, the ministry said in a statement.

Miguel Messmacher, a deputy finance minister, said later on Wednesday that the Mexican oil company will have less need to further tap credit markets following the liquidity injection.

"This is good, because it is comprehensive and it deals with the main issues," said Alexis Milo, an economist at Deutsche Bank in Mexico City.

"The reaction of markets will be positive because this is the beginning of the structural changes that markets were expecting," he added.

Pemex has historically provided federal coffers with as much as 40 percent of its revenue, but recently that amount has been halved.

A constitutional energy overhaul passed in 2013 at the start of President Enrique Pena Nieto's administration ended Pemex's decades-long monopoly and promises to boost future oil output by luring new private and foreign producers into the country.

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