The Moody’s rating agency changed the rating outlook for Petróleos Mexicanos (Pemex) from stable to negative after the rating downgrade that Fitch Ratings made to the oil company in recent days.
The rating agency confirmed Pemex’s credit note at “B1”; however, the revision of its perspective occurred in the absence of fundamental changes in the company’s business strategy.
“The company is likely to face increased credit risks due to its inability to increase capital investments and improve its financial and operating performance as a result of liquidity constraints,” Moody’s said.
So far in the current administration, aid has been given to Pemex for around 770,000 million pesos, according to calculations by México Evala.
Moody’s indicated that it expects government support for Pemex to continue very high in the remainder of 2023 and 2024.
However, Moody’s pointed out that, given the expectation that the financial foundations of the state production company continue to deteriorate, in a scenario where no changes in the current business model are in sight, the incoming government will have difficulties maintaining the same magnitude of support.
“This is because the expectation of less fiscal flexibility in the coming years would limit the sovereign’s ability to provide support at levels equivalent to those recorded during the outgoing administration of Andrés Manuel López Obrador,” Moody’s explained.
At the beginning of last week, the rating agency Fitch Ratings cut Pemex’s grade from “BB-” to “B+” due to the weak operating performance of the oil company, for which the outlook is also negative.
No rise in the short term
Moody’s indicated that it does not foresee an upgrade in the oil company’s rating in the short term, but there could be a review from the perspective of certain conditions.
“The outlook could return to stable thanks to the recovery of confidence in Pemex’s ability to implement a strategy that improves its financial and operating performance in the medium term, which would translate into an improvement in its liquidity position.” “In addition, a credible plan to address ESG challenges would also support a change to a stable outlook,” the rating agency noted.
Meanwhile, factors that would help raise Pemex’s rating are the ability to strengthen its liquidity position and finance, internally, reinvestments of sufficient capital to completely replace reserves, as well as achieve modest growth in production and generate free cash flow to reduce its debt.
On the other hand, the factors that could cause the rating agency to pass scissors to the oil company’s note are a decrease in production and reserves in the medium term or that operating performance is further affected by the lack of maintenance investments.
“Increased negative free cash flow, leading the debt trajectory to shift higher due to increased negative Ebitda from the refining industry or increased financing expenditures,” it added.
Government supports
Moody’s pointed out that Pemex’s rating depends, to a large extent, on government support, so a change in the agency’s assumptions regarding these transfers could lower the oil company’s rating.
“For Barclays, the federal government’s support for Pemex is indisputable and will continue to happen,” said Gabriel Casillas, the institution’s chief economist for Latin America.
“A good company”
At a press conference, Gabriel Casillas pointed out that despite the opinions, Pemex is a good company with good margins on the exploration side, and, given the indebtedness observed in past administrations, the government’s support is understandable.
