Moody’s sees a lower risk of PEMEX’s bonds being downgraded this year

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Moody’s Investors Service sees a lower risk of Petroleos Mexicanos’ bonds being downgraded further into junk territory this year, thanks to recent government aid, higher crude oil prices, and stabilizing production.

Pemex’s “debt must have declined last year because of the payments by the government, production has stabilized and prices are very solid, so they should be less of a burden — at least, this year,” Moody’s analyst Nymia Almeida said in a phone interview from Mexico City. “I think the amount of money that they may need this year will be less.”

Moody’s rates Pemex Ba3, three notches below investment grade, with a negative outlook.

Some investors have questioned Pemex’s credit rating since the oil producer announced in December that it would stop exporting crude by 2023, as part of a government goal of producing all of Mexico’s fuel domestically. Almeida agrees the plan poses concerns in the longer term.

The export halt risks making Mexico a net importer of crude since Pemex doesn’t have the oil volumes necessary to meet the country’s fuel consumption, she said. Halting exports would also reduce Pemex’s ability to generate dollar revenue to repay its foreign debt.

“They need to generate hard currency to pay their debts, so it’s important that they keep exporting oil,” she said.

Pemex has historically contributed about one-third of the government’s revenue. But falling output, weaker oil prices, and improved revenue collection from other sources have reduced this amount over the past decade to about 8%, according to a U.S. Department of State report. The state oil company had $113 billion of debt at the end of the third quarter, more than any other oil company in the world.

Mexico President Andres Manuel Lopez Obrador pledged billions of dollars to support the beleaguered state oil driller last year and offered to cover its amortization payments. While analysts have welcomed the fiscal aid as a sign of the government’s support for Pemex, they question whether Mexico’s new strategy of focusing on refining all of its own crude will detract from its core job of drilling and prove an impossible task.

“If they don’t invest enough in downstream they will not be able to increase production of fuel,” Almeida said. “I don’t see them investing enough.”

Source: El Financiero

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