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Haley Zaremba

Haley Zaremba

Haley Zaremba is a writer and journalist based in Mexico City. She has extensive experience writing and editing environmental features, travel pieces, local news in the…

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Pemex’s Corruption Crackdown Has Investors Scrambling To Get Out

Mexico’s leftist president Andrés Manuel López Obrador won the election in a landslide last year, thanks in large part to his promise to crack down on corruption throughout the Mexican political system and the country’s long-ailing state-owned oil company Petróleos Mexicanos. Now López Obrador is proving himself to be a man of his word, first by cracking down on the rampant, wide-scale fuel theft that has plagued Pemex for years, and now with a sweeping probe of the company, which has already uncovered a corruption scandal resulting in the arrest of a business executive, the issuance of a warrant for Pemex’s former Chief Executive Officer Emilio Lozoya, and multiple bans from serving in government positions for others involved in the revealed wrongdoings.

“But what has escaped government scrutiny,” reported Bloomberg this week, “is just how much one of the two sweetheart deals in question helped out a bank owned by billionaire Ricardo Salinas Pliego, a López Obrador ally who has had a previous run-in with regulators over accusations of self-dealing.”

Bloomberg reports that the scandal in question, which has so far flown under the radar, revolves around a 2016 deal in which Pemex agreed to grossly overpay for struggling and indebted fertilizer production company Grupo Fertinal, acquiring and then  promptly paying off the $400 million worth of debt that Grupo Fertinal owed to lenders, the lion’s share going to Salinas’s bank, Banco Azteca.

Despite being involved in a very similar deal which “also involved a sudden payment of old debts” ten years ago, Salinas has yet to be officially accused of any illegal activity, despite the major crackdown on corruption that has swept up so many other high-powered Meixcan businessmen in recent months. In the case ten years ago, Salinas “bought up debt owed by one of his own companies at a deep discount while knowing, according to U.S. regulators, that the company was about to receive a large cash injection. After the transaction, the company -- a mobile-phone service provider called Unefon -- paid off the debt in full, allowing Salinas to pocket a quick gain of $109 million.” Related: An Offshore "Scavenger" Too Enticing To Ignore

Bloomberg’s expose implies that the billionaire has so far been spared thanks to his numerous connections with President López Obrador. Salinas holds a position on López Obrador’s business advisory board and his bank secured a no-bid contract to “be in charge of distributing millions of debit cards for federal assistance programs” when the President took office in December of last year.

Unsurprisingly, López Obrador’s press office denies that there is any favoritism at play in the president’s anti-corruption campaign. What’s more, it can’t be denied that overall López Obrador’s administration has been tough on corruption, as promised. They have successfully lowered fuel theft in Mexico by a wide margin, and bigwigs like former Pemex CEO Lozoya are finally being investigated after years of impunity.

So far, however, this hasn’t resulted in a turnaround for the long-struggling Pemex. In fact, it has gone so far as to turn investors off. Investment in Pemex has already plummeted this year, as the company is “earlier this month Fitch Ratings cut Pemex to a high-yield rating, while Moody’s Investors Service dropped the company to its lowest investment-grade rating,” according to the Wall Street Journal. “Its bonds are showing signs of forced selling by funds with limits on owning junk debt. And the selling is far from over.” 

Instead of instilling more confidence in investors that Pemex is heading in the right direction, the sweeping corruption probes have, in fact, give many investors pause by adding to the perception that the company is both unstable and vulnerable. “Investors are less interested in seeing [López Obrador’s administration] root out bad apples at Pemex than they are in his containing the spreading rot on its balance sheet,” reports Bloomberg Businessweek. “At more than $100 billion, its debt is the biggest of any oil company.”

By Haley Zaremba for Oilprice.com

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