The Fitch Ratings agency cut Petróleos Mexicanos (Pemex)’s rating to ‘B+’, from ‘BB-‘, due to the company’s weak operating performance and its long-term financial management.
After this cut, the oil company’s rating is in highly speculative territory and is two steps away from being considered “junk grade”, which is when a company or government has a high probability of credit default.
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“The downgrades reflect Pemex’s continued weak operating performance. High debt service and the need for the government to finance negative cash flows have been key reasons for underinvestment,” the rating agency added in a report.
From Fitch Ratings’ perspective, the multiple fires in assets and infrastructure that resulted in numerous injuries and deaths of its employees reflect concerns related to the management of its operations or the lack of capital for maintenance.
Just last week, a fire broke out at Pemex’s Nohoch-Alfa platform in Campeche, leaving two people dead and one missing, as well as at least eight injured.
Octavio Romero Oropeza, General Director of Pemex, assured that both the deceased and the missing persons were not part of the state company, but of a company that carried out installation work on the platform.
Under this scenario, in addition to the credit cut, Pemex was placed on “negative watch” (RWN), which means that Fitch could lower the company’s rating in the future due to new risk scenarios.
“The RWN reflects concerns about the Mexican government’s ability and willingness to materially improve the company’s liquidity position and capital structure over the next two years, without concessions from creditors,” Fitch Ratings explained.
As of today, Pemex faces international debt bond maturities of US$4.6 billion in 2023 and US$10.9 billion in 2024.
According to the rating agency, the refinancing of this debt will expose the company to higher interest expenses, which in turn will put further pressure on its cash flow.
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“Fitch estimates, based on our rating case, that the government will have to spend approximately $20 billion more than it receives from the company in 2026 and 2027 to keep Pemex afloat,” Fitch Ratings concluded.
2023-07-14 18:52:05
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