(Reuters, 15.Dec.2020) — Mexican state oil giant Pemex could sink deeper into junk territory if Mexico’s sovereign credit rating is downgraded, ratings agency Moody’s said on Wednesday.
Moody’s stripped heavily indebted Pemex of its investment grade rating in April and downgraded it to junk status by cutting its rating to “Ba2” from “Baa3.”
That downgrade meant Pemex, which has more than $105 billion in financial debt, became the world’s largest “fallen angel,” the term for a borrower that descends from investment grade to junk.
The credit metrics for one of Latin America’s largest oil companies will remain weak for the foreseeable future, the ratings agency said in a semiannual update, citing low oil prices, Pemex’s debt burden and ongoing underinvestment.
Moody’s said a downgrade of Mexico’s sovereign Baa1 rating would also “likely result in a downgrade of Pemex’s rating” further into speculative or “junk” territory.
In case Mexico’s sovereign debt is downgraded, Pemex’s “baseline credit assessment would have to substantially improve” for it to maintain its Ba2 rating, Moody’s said.
Mexican President Andres Manuel Lopez Obrador, a leftist oil nationalist, has staked his reputation on reviving Pemex, which has been a powerful symbol of Mexican self-reliance since its creation in 1938. But a combination of declining output, crushing tax obligations and a hefty payroll burden have gradually weakened the company, which is a major source of federal budget revenues.
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