Pemex Turmoil Batters Bond Traders Again as Supplier Defaults

  • Arendal failed to repay $100M bond after Pemex payment delays
  • Pemex is hard up for cash amid low oil prices, falling output

Pipeline builder Arendal S de RL has become the latest casualty of Mexico’s state-owned oil producer.

The company defaulted on a $100 million bond that was due last week after Petroleos Mexicanos deferred plans to build two pipelines and delayed payments to suppliers. Arendal depends on Pemex, as the oil giant is known, for about 80 percent of its income. In February, Fitch Rating said that Pemex owed Arendal 1.8 billion pesos ($97.4 million).

Battered by low oil prices and sinking output, Pemex owed suppliers $7.2 billion at the end of the first quarter, more than any other company in Latin America. It has extended the amount of time it takes to pay suppliers to 180 days from 20 as it cuts costs in the wake of 14 straight quarterly losses. Pemex, which has $95 billion of debt, has also slashed the day rates it pays to rent rigs, a move that triggered a default by supplier Oro Negro last year. The notes of fellow rig operator Offshore Drilling Holding SA fell to a record 29.5 cents on the dollar May 23, signaling investors are concerned it will struggle to repay the debt.

“The delays in accounts receivable pressured their working capital,” Francisco Gutierrez, an analyst at S&P Global Ratings, said, referring to Arendal. “About 90 percent of Arendal’s projects are with Pemex, which shows how vulnerable they are.”

Pemex didn’t reply to a request for comment on Arendal’s default and its treatment of its suppliers. Arendal declined to comment.

On May 16, Pemex said it had cut its debt to suppliers by 92 billion pesos. The oil producer said it prioritized payments to companies it owed less than 85 million pesos each, which covered 90 percent of the companies it was indebted to.

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