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Pemex business plan does not change negative outlook: Moody's analyst

Pemex, the world's most heavily indebted oil company

By Stefanie Eschenbacher / Reuters

Petroleumworld 19 07 2019

Pemex has failed to convince ratings agency Moody's Investor Services with its newly unveiled business plan, an analyst for the Mexican state oil company said on Wednesday, adding that the risk for a downgrade persists.

Pemex, the world's most heavily indebted oil company, is on the verge of losing its investment grade rating after Fitch downgraded its bonds to speculative grade, or junk status, in June. Mexico on Tuesday detailed a keenly awaited business plan meant to revive the company.

Peter Speer, an analyst covering Pemex, said in an interview that the business plan did not change Moody's expectations for the company's financial performance, though it did shed more light on the government's support of the company for next year.

“We still have a negative outlook. We still have concerns about the rating, and there are risks to the rating,” Speer said, adding that a negative outlook usually implies a possible downgrade within six months to a year.

The plan announced this week reduces Pemex's tax burden and grants the company $7.2 billion in financial support from the government over the next three years.

Another risk to Pemex's rating is the negative outlook the agency has set for the Mexican government, Speer said.

“If the government's rating were to be downgraded, that would likely lead to a downgrade for Pemex,” he said.

Moody's changed the outlook for Pemex bonds to negative in June. A second downgrade from Moody's or S&P Global would trigger forced selling of widely held Pemex bonds worth billions of dollars.

Pemex would also become the world's largest fallen angel, as bond issuers stripped of their investment grade ratings are known. In recent weeks, Pemex bonds have traded as if they were already rated junk.

Moody's said earlier on Wednesday in a note to investors that the Mexican government should significantly increase financial support for Pemex, adding that the government might have to fund some of Pemex's debt maturities if they cannot be refinanced.


Reporting by Stefanie Eschenbacher; Editing by Cynthia Osterman from Reuters. 18 07 2019


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