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EXCLUSIVE-Pemex could tap Mexican debt market more

(Adds details, quotes on budget)

MEXICO CITY, Sept 10 (Reuters) - Mexican state oil company Petroleos Mexicanos should consider borrowing more on the local market to meet its vast financing requirements, a top official said after the finance ministry presented an austere 2021 budget.

Pemex is already the world’s most indebted oil company and was this year stripped of its investment grade rating.

Billions of dollars in bond repayments are still due during the six-year administration of President Andres Manuel Lopez Obrador, despite several refinancing transactions.

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, mostly dollar-denominated.

“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; he sees the construction of a new refinery in his home state Tabasco as a milestone towards energy independence.

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 the large sums the company could need to maintain operations and repay existing debt.

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.

Central Bank Deputy Governor Jonathan Heath on Wednesday 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.

Many investors sold the bonds of the troubled behemoth and sought out safer assets even before its descended into junk.

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

Yorio said the 2021 budget - criticized by many as too optimistic on growth and crude oil production - was intended “to give Pemex more flexibility” after a particularly difficult time that saw prices for its main export crash.

A document circulated by members of the lower house of Congress showed Pemex could get a 4.4% increase in allocations at a time when most other sectors were cut.

“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 and Marguerita Choy)

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