Fitch cuts Pemex to junk
Omar Torres /AFP
Pemex posted net profits of 113 billion pesos ($6.2 billion) from January to March, up 29 percent from the same period last year, and an improvement on its $18 billion loss in the last three months of 2017
Long-term issuer default rating cut one notch to BB+
Fitch downgrade may prompt a forced sell-off, investors warn
By Amy Stillman and Justin Villamil / Bloomberg
Petroleumworld 06 07 2019
Fitch Ratings downgraded Petroleos Mexicanos for a second time in five months, plunging the world's most indebted oil company into junk status.
Pemex's rating was cut one notch to BB+, after Fitch cut Mexico late Wednesday, at about the same time Moody's Investors Service changed the outlook on the country to negative -- a move it repeated for Pemex Thursday.
The oil producer's dollar debt maturing in 2027 fell 2.19 to 99.01 cents at 4 p.m. in New York, pushing the yield up 36 basis points to 6.66%
Recent government measures to save Pemex, including a record $8 billion bank loan last month, several tax relief packages and a pledge to not issue new debt this year failed to convince Fitch that Pemex could reverse 14 years of production declines and reduce $106.5 billion of debt.
“Pemex's negative outlook reflects the potential for further deterioration of the company's stand-alone credit profile to below ‘ccc',” Fitch said in a statement. “Although Pemex has implemented some cost cutting measures and received moderate tax cuts from Mexico, the company continues to severely under-invest in its upstream business, which could lead to further production and reserves decline.”
Markets have been skeptical of Mexico President Andres Manuel Lopez Obrador's plan to rescue Pemex after he suspended oil auctions that investors had hoped could reverse sinking output by bringing in private capital. Another worry is whether Pemex's planned new refinery in Tabasco, the $8 billion pet project of the president, will divert resources away from exploration and production.
Pemex's six existing refineries are operating at 35% of their capacity due to chronic under-investment, while oil output is less than half of what it once was, at 1.68 million barrels a day in April.
“Pemex will have to go out to the market again and again, so if they are below investment grade then you reduce the number of people who can buy your bonds and that would make it much more complicated to try to raise the necessary money,” said Luis Maizel, a senior managing director at LM Capital Group in San Diego, which holds Pemex bonds. “Right now, it's a split rating so that doesn't automatically put you into junk, I just hope this is a call to action.”
On Thursday, Moody's held Pemex's rating at Baa3, just above junk status. The ratings firm said in a statement that if the company didn't have an assumed government guarantee, the standalone rating would be seven levels into high-yield territory, at Caa1, amid expectations of ongoing negative free cash flow and declining reserves. In January, Fitch downgraded Pemex's long-term issuer default rating two notches to BBB- from BBB+.
The Finance Ministry said Thursday that the move by Fitch is doubly punishing Mexico's finances by downgrading the sovereign based on the assumption that it will aid Pemex. At the same time, it's penalizing Pemex for considering the aid insufficient, the ministry said in a statement.
It's not the first time a Latin American oil giant is cut to junk. Back in 2015, Brazil's Petroleo Brasileiro SA became the largest non-investment grade corporate issuer amid an oil-price rout and a graft scandal that sent some of its suppliers into bankruptcy protection.
Story by Amy Stillman and Justin Villamil from Bloomberg.
bloomberg.com/ 06 06 2019
We invite you to join us as a sponsor.
Circulated Videos, Articles, Opinions and Reports which carry your name and brand are used to target Entrepreneurs through our site, promoting your organization’s services. The opportunity is to insert in our stories pages short attention-grabbing videos, or to publish your own feature stories.
Copyright© 1999-2019 Petroleumworld or respective author or news agency. All rights reserved.
We welcome the use of Petroleumworld™ (PW) stories by anyone provided it mentions Petroleumworld.com as the source.
Other stories you have to get authorization by its authors. Internet web links to http://www.petroleumworld.com are appreciated.
Petroleumworld welcomes your feedback and comments, share your thoughts on this article, your feedback is important to us!
We invite all our readers to share with us
their views and comments about this article.
Write to email@example.com
By using this link, you agree to allow PW
to publish your comments on our letters page.
Any question or suggestions,
please write to: firstname.lastname@example.org
Best Viewed with IE 5.01+ Windows NT 4.0, '95,
'98,ME,XP, Vista, Windows 7,8,10 +/ 800x600 pixels