Mexico is studying options to absorb as much as $40 billion in Pemex debt, the equivalent of what will come due in the next presidential term, one of its top finance officials told investors in New York.

The government is considering options that could include repurchasing bonds issued by the heavily indebted state oil firm Petroleos Mexicanos or issuing sovereign debt to fund buyouts, Deputy Finance Minister Gabriel Yorio told investors, according to people who participated in the meeting. The plan would be gradual, to be exercised over the course of the next six years, and any significant operations would require legislative changes, he said at the meeting.

Yorio declined to tell the investors details of the option the government is leaning toward. Other potential paths include removing more taxes and moving to a policy of paying dividends, one of the people said. He also said he expects to be named to a post in the Finance Ministry or at Pemex under the next administration, added the people, who asked not to be identified discussing a private conversation.

Mexico’s sovereign bonds slipped on Thursday while notes issued by Pemex jumped, posting some of the biggest gains among emerging-market corporates. The company’s longer-dated debt due 2050 trades around 70 cents on the dollar, underscoring investor jitters over how Mexico plans to address the driller’s massive debt burden over the long term.

“Obviously, this is a positive for Pemex and good enough to scare anybody being on the wrong side of the trade,” said William Snead, a strategist at Banco Bilbao Vizcaya Argentaria SA. “They are re-stating the support for Pemex, which is a continuation of what we have already seen and this is good to justify the uptick in bond prices.”

The Pemex Challenge

Yorio serves under Finance Minister Rogelio Ramirez de la O, whom presidential frontrunner Claudia Sheinbaum has publicly lobbied to remain in his post as she campaigns to keep the ruling party in power.

A spokesman for Mexico’s Treasury didn’t immediately reply to a request for comment sent after business hours on Wednesday. Pemex also didn’t immediately reply to a request for comment.

Pemex stands as one of the greatest challenges Mexico’s next president will inherit, given the company’s $102 billion debt burden, which has grown so large in recent years that it has hindered market access.

Sheinbaum told Bloomberg last month the government would work toward refinancing Pemex’s debt ahead of large maturities coming due in 2025. While the government has said it would cover the majority of its debt due this year, it has another $6.8 billion in bonds due next year.

Sheinbaum Eyes Pemex Refinancing Ahead of 2025 Maturities

Government has already earmarked payments for 2024 payments

Current President Andres Manuel Lopez Obrador has propped the company up financially in recent years, granting Pemex around $80 billion in support in the form of cash injections and tax breaks since coming to office in 2018. Mexico’s election will be held June 2, with a transition of power at the beginning of October.

Pemex’s oil production has slumped by half from its peak about two decades ago. It’s been plagued by accidents, oil spills and methane leaks as money that could be going to repair aging infrastructure is instead spent on interest payments and unpaid invoices.

Ramirez de la O said this week that Mexico’s government would continue to provide direct financial support to Pemex while it refinances its debt, and that the company and the government would also begin reviewing cost reduction options to shore up the company’s finances.

“If the government does eventually end up shifting some of the Pemex debt onto its balance sheet, it will mean a deterioration” of the nation’s fiscal outlook, said Guido Chamorro, co-head of emerging-market hard-currency debt at Pictet Asset Management in London. “In other words, we should start to see Mexico issue more eurobonds.”