Mexico’s Pemex slides deeper into junk food as Moody’s cuts rating

The Mexican state corporation oil Pemex plunged deeper into so-called junk status on Monday after a major credit rating agency downgraded its long-term debt by one notch.

Moody’s Investors Service downgraded Pemex’s credit rating from Ba3 to B1, four notches in the agency’s speculative status, reflecting higher default risk for the company formerly known as Petroleos Mexicanos.

This decision marks only the last blow to the ailing Mexican oil company.

Two of the three major rating agencies have already stripped Pemex, the world’s most indebted national company oil company, the coveted Investment Grade rating in 2020.

In a statement, Moody’s flagged Pemex’s high liquidity risk, massive debt repayments due by 2024, negative cash flow as well as large amounts of external financing needed.

In March, impending debt payments included $5.1 billion due in 2022, $7.5 billion in 2023 and $8.9 billion in 2024, according to Moody’s.

“Pemex will have substantial negative free cash flow over the next 12 to 18 months, due to insufficient operating cash generation to pay interest expense, taxes and capital expenditures,” said Moody’s.

“Pemex’s access to capital markets is currently limited given its high intrinsic credit risk.”

Neither Pemex nor the Department of Energy immediately responded to a request for comment.

Victor Gomez Ayala, a former Mexican finance ministry official, pointed to the rating agency’s “very strongly negative” assessment of Pemex’s economic, social and governance considerations.

“The company’s next debt issues will inevitably be tied to such principles and this will likely put upward pressure on their yields,” he said.

Moody’s noted that Pemex performed poorly on all three factors, including “very high carbon transition risk” while others oil businesses are moving towards cleaner energy.

While lowering their credit rating, Moody’s changed Pemex’s outlook from “stable” to “negative”.

Last week, S&P Global Ratings also revised Pemex’s outlook to negative from stable, after reviewing Mexico’s long-term outlook. Still, S&P pointed to the Mexican government’s failure to push through an overhaul of the electricity market as the reason for the better outlook rather than any structural change.

(Reuters – Reporting by Stefanie Eschenbacher in Mexico City; Additional reporting by Arunima Kumar and Shivani Tanna in Bengaluru; Editing by Devika Syamnath and David Alire Garcia)

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