Moody’s downgrades Mexico’s Pemex rating to junk status

RIO DE JANEIRO, BRAZIL – Moody’s on Tuesday (27) downgraded Petróleos Mexicanos’ (Pemex) credit rating to Ba3 from Ba2, and maintained the negative outlook which could signal future downgrades in the next 12 to 18 months.

The agency indicated that this rating downgrade – classifying it as junk – is based on the state-owned oil company’s high liquidity risk and growing business risk as it expands its refining and production capacity.

“Moody’s believes that such strategy will generate higher refining operating losses in the short and medium term. The outlook on Pemex’s rating remains negative, primarily due to the negative outlook on Mexico’s Baa1 government rating,” the agency said.

It added that the company’s need for liquidity will increase over the next 3 years due to high debt maturities and lower operating cash flow from the expansion of its refining business, which has generated operating losses of US$17 billion from 2018 to 2020.

“We recognize that Pemex has been successful in reverting production and reserves declines over the past 2 years and we believe this trend will continue in 2021. However, we expect cash flow generation and credit metrics to deteriorate further over the next 3 years as the company increases fuel production, while grappling with limited capital investment ability, high debt maturities, and volatile oil and fuel prices,” it added.

Finally, it said that the rating granted to Pemex reflects the high government support and a very high correlation of default between the state-owned company and the Mexican government.

Source: El Financiero