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Exclusive: Mexico's Pemex could look to Mexican borrowers for financing needs

MEXICO CITY (Reuters) - Mexican state oil company Petroleos Mexicanos should consider borrowing on the local market to meet its vast financing requirements, a top official said after the finance ministry presented an austere 2021 budget.

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Pemex [PEMX.UL] is already the world’s most indebted oil company, and billions of dollars in bond repayments are due during the six-year administration of President Andres Manuel Lopez Obrador.

Mexican Deputy Finance Minister Gabriel Yorio told Reuters in an interview at the National Palace that about 80% of the oil company’s debt is external, and most of it denominated in dollars.

“Under the new model of vertical integration - extraction, production and refining - the logic would probably be that its debt should be held in pesos because so will be its revenues,” Yorio said late on Wednesday.

Yorio said that Pemex would probably have to return to foreign debt markets, but that the finance ministry was also talking to the company about turning to the domestic market, including for bond issuance.

Lopez Obrador has sought to export less crude oil and keep more refining business in Mexico.

If the government goes through with this plan, Mexico would have fewer revenues from oil sales denominated in dollars.

It is not clear whether the local market will have appetite for such large sums.

Pemex is one of the largest issuers of debt in Latin America: of $107.2 billion total financial debt, nearly 90% is held by bond investors.

Despite several refinancing transactions, a graphic made public with an earlier draft budget showed the oil company has tens of billions of debt due by the end of Lopez Obrador’s term.

Central Bank Deputy Governor Jonathan Heath called Pemex’s financial situation the Mexican government’s “biggest headache”.

Heath called for a solution to a debt burden that is already weighting on the sovereign rating.

This year, the bonds of the troubled behemoth descended into junk; many investors sold even before the ratings cut and sought out safer assets instead.

Lopez Obrador and other officials insist they are on the right track to save Pemex.

“The commitment, and the president has made this very clear, is to support Pemex in the first half of his administration so that it can support us in the second half,” Yorio said. “Pemex is a very valuable asset.”

Reporting by Stefanie Eschenbacher and Abraham Gonzalez; Editing by Frank Jack Daniel and Gerry Doyle

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