Petroleos Mexicanos (Pemex) is on the brink of default without robust support from the Mexican government, warns Moody’s Investors Service, as it further downgrades the state oil company’s debt into junk territory.
Moody’s lowered Pemex’s corporate debt to B3 from B1, maintaining a negative outlook. The Baseline Credit Assessment, indicating high default likelihood without state backing, was also downgraded. The credit rating agency anticipates increased reliance on external funding due to negative free cash flow and criticizes Pemex’s aggressive financial policies, resulting in an unsustainable capital structure.
With $11 billion due this year, investors are eager for a government plan to address Pemex’s massive debt burden. Despite President Lopez Obrador’s support through tax cuts and capital injections, Pemex remains the world’s most indebted oil company, facing financial decline amid lagging production and slumping profits.
Moody’s cut reflects a presumed shift in the government’s willingness to fully support Pemex’s debt, considering the company’s growing cash needs and expected deterioration in Mexico’s fiscal conditions in 2024. Lopez Obrador’s nationalistic policies limiting private-sector investment in the oil industry add to Pemex’s challenges.
As Mexico’s budget faces a potential historic deficit, Moody’s warns of Pemex’s precarious position, contrasting with Standard & Poor’s BBB rating and Fitch Ratings’ own junk rating on Pemex debt. Pemex and the Finance Ministry declined immediate comments on the downgrade.
