Another day, another ratings outlook downgrade. S&P Global has reduced its outlook for state oil company Pemex to negative from stable, calling the government’s rescue plan for the debt-laden company “insufficient”.
The move mirrored the rating agency’s reduction of Mexico’s sovereign outlook last Friday to negative from stable.
S&P reiterated its foreign-currency debt rating of BBB+ and A- in local currency, but lowered Pemex’s standalone credit profile to B- from BB- “owing to the continued deterioration in the profiles of business and financial risk” at the former monopoly.
While it said it was reassured the government would stand by Pemex to ensure it met all its financial obligations and would step in if needed, “we consider that the financial plan to restore the credit fundamentals of the oil company is insufficient with respect to its multi-annual capital investment needs”.
Mexico’s government says it has freed up $5.5bn for Pemex this year, through tax reductions, a capital injection and other savings. But analysts say that is only half to a third of the company’s needs. The lossmaking oil producer is battling to stabilise output this year after 15 years of falls and has $107bn in debt, with a severe lump of repayments starting this year.
Fitch Ratings cut its Pemex rating to one notch above junk at the end of January and Moody’s Investors Service has said its sovereign ratings outlook for Mexico is under severe pressure because of Pemex. Financial markets are increasingly pricing in a sovereign downgrade, although not yet to below investment grade.
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