April 13, 2016 / 4:31 PM / 2 years ago

UPDATE 2-Mexico gives Pemex $4.2 bln shot of liquidity

(Adds Pemex comment, paragraph 8)

MEXICO CITY, April 13 (Reuters) - Mexico’s Finance Ministry announced on Wednesday a series of measures to improve Pemex’s finances, giving the ailing state-owned giant a $4.2 billion liquidity boost.

That includes a capital injection of 26.5 billion Mexican pesos ($1.5 billion) and a credit facility for a further 47 billion pesos to pay down pension costs this year.

The support also includes tax breaks that will allow Pemex to deduct more of its exploration and production costs.

As a condition of accepting the support, the company must reduce its liabilities by 73.5 billion pesos.

Mexico’s oil output has slid for 11 consecutive years, while crude prices have fallen about 70 percent since 2014, both of which have battered public finances.

The federal government was able to support Pemex because of previously announced budget cuts in February, the ministry said in a statement.

Miguel Messmacher, a deputy finance minister, said the Mexican oil company would have less need to tap credit markets after the liquidity injection.

Pemex said it would use some of the extra cash to pay back billions of dollars owed to dozens of suppliers and contractors for last year, many of them small and medium-sized firms fully dependent on its business.

“This is good, because it is comprehensive and it deals with the main issues,” said Alexis Milo, an economist at Deutsche Bank in Mexico City. “The reaction of markets will be positive because this is the beginning of the structural changes that markets were expecting.”

Pemex has historically provided the federal government with as much as 40 percent of its revenue, but recently that amount has been halved.

A constitutional energy overhaul passed in 2013 at the start of President Enrique Pena Nieto’s administration ended Pemex’s decades-long monopoly and promises to boost future oil output by luring new private and foreign producers into the country. ($1 = 17.4849 Mexican pesos) (Reporting by Peter Cooney)

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