Background on Pemex and its Financial Challenges
Petróleos Mexicanos (Pemex) is Mexico’s state-owned petroleum company and one of the most indebted oil companies globally. Its financial struggles have put pressure on Mexico’s public finances for several years.
Fitch Ratings’ Decision
On this Friday, Fitch Ratings announced that it had upgraded Pemex’s credit rating from ‘B+’ to ‘BB’. This improvement came after the Mexican government’s successful debt issuance of $12 billion during the week.
Details of the Debt Issuance
The Mexican Secretariat of Finance and Public Credit (SHCP) issued a bond worth $12 billion through the investment vehicle Eagle Funding LuxCo. This issuance is the second-largest bond structure in history, according to the federal agency.
- The bond received a total demand of $23.4 billion from 295 institutional investors worldwide, nearly double the final amount.
- The initial amount planned was $10 billion, but it was increased due to high investor interest.
The funds raised will be used to pay financial obligations, debt amortizations, and interests between 2025 and 2026.
Fitch’s Evaluation of Pemex
Fitch explained that the rating upgrade for Pemex resulted from the successful completion of Mexico’s P-Cap transaction worth $12 billion. This development led Fitch to strengthen its assessment of the “Support Track Record” factor under its criteria for Government-Related Entities.
- Fitch upgraded Pemex’s “Support Track Record” from “not strong enough” to “strong,” enhancing the company’s overall linkage score and Mexico’s ratings by 5 points.
- Fitch also raised Pemex’s Individual Credit Profile (ICP) from ‘ccc-‘ to ‘ccc,’ reflecting increased financial flexibility and liquidity due to the P-Cap transaction.
Government Measures and Fitch’s Perspective
Fitch acknowledged the legislative measures taken by the Mexican government to allow Pemex to share its debt limit with SHCP. The P-Cap transaction significantly addressed Pemex’s short-term obligations, according to Fitch.
These measures indicated greater government oversight and improved decision-making, as per Fitch.
Pemex’s Financial Situation and Future Outlook
The $12 billion bond issuance is part of the federal government’s comprehensive strategy to strengthen Pemex’s financial position. These notes are a supplement to the approved budget for Pemex, aiming to support its financial situation.
Despite the recent upgrade, Pemex continues to face financial challenges. The Mexican government remains committed to addressing these issues and ensuring the company’s long-term stability.
Key Questions and Answers
- What is Petróleos Mexicanos (Pemex)? Pemex is Mexico’s state-owned petroleum company, one of the most indebted oil companies globally.
- Why did Fitch upgrade Pemex’s credit rating? Fitch upgraded Pemex’s rating following the successful $12 billion debt issuance by the Mexican government, which improved Pemex’s financial outlook.
- What is the P-Cap transaction? The P-Cap transaction refers to a $12 billion debt issuance by the Mexican government to support Pemex’s operations.
- How will the funds from the bond issuance be used? The funds raised will be allocated to pay financial obligations, debt amortizations, and interests between 2025 and 2026.
- What does the Fitch upgrade mean for Pemex? The rating upgrade indicates increased financial flexibility and liquidity for Pemex, along with improved government support.
