One step closer to junk
On January 29, Fitch Ratings downgraded both Pemex Long-Term Foreign- and Local-Currency Issuer Default Ratings by two notches to BBB-, one step above the non-investment grade segment. The rating outlook is negative. Other rating agencies also rate Pemex as an investment grade issuer, S&P assign it a BBB+ and Moody’s rates it Baa3, just one notch above the non-investment grade mark.
PEMEX is a fully integrated Mexican oil and gas company. It is involved in every aspect of the oil and gas value chain, from exploration, production, refining, distribution and marketing. It is owned 100% by the Mexican Government. PEMEX is Latin America’s largest corporate bond issuer and with nearly USD 100bln in debt, it is the most indebted oil major.
It is the largest tax contributor to the Mexican Government, having historically contributed between 25% and 30% of government revenues. It generates approximately 2.5 million barrels of oil daily and more than 6 million cubic feet of natural gas. It has 6 refineries and petrochemical complexes, 9 gas processing complexes, operates 83 land and maritime terminals, as well as oil and gas pipelines, maritime vessels, and varying fleets of ground transportation in order to supply over 10’000 service stations throughout Mexico. In 2017, PEMEX exported 60% of its crude oil production.
Standalone Credit Profile has weakened
Fitch downgrade is motivated by the continuing under-investment in the company’s upstream business, which could lead to further production declines, as well as large cash extraction from the government, resulting in negative free cash flow. This has contributed to continuously deteriorating PEMEX’s standalone credit profile, which represents the credit profile of the entity without the support of the government, as previously assessed as B- and now considered as CCC.
The rating agency also notes that the government has not recognised the strategically important role PEMEX plays for the government in the country. Fitch says that “Financial distress at PEMEX could disrupt the supply of liquid fuels in the entire country, which could have material social and economic consequences for Mexico”.
PEMEX is caught into a vicious circle, where more cash is extracted from the Mexican Government, leaving little…………….
In order to access the entire article, do not hesitate to contact one of our advisers at www.bridport.ch/Teams/Sales