Background on Pemex and its Importance
Petróleos Mexicanos (Pemex) is the state-owned Mexican petroleum company, responsible for exploration, production, refining, and marketing of oil and natural gas in Mexico. As the largest company in Mexico, Pemex plays a crucial role in the country’s economy and energy sector. Its performance directly impacts Mexico’s overall financial stability and the well-being of its citizens.
Fitch’s Recent Credit Rating Improvement
Fitch Ratings, a prominent credit rating agency, has upgraded Pemex’s long-term debt ratings from “BB” to “BB+” in both local and foreign currency denominations, maintaining a stable outlook. This is the second upgrade in just two months, following Fitch’s positive assessment of Pemex’s government support.
Reasons for the Upgrade
- Successful Bond Offering: Pemex recently executed a public offering for $9.9 billion in eight series of bonds, financed by cash funds from the Mexican government.
- Increased Government Support: Fitch acknowledged the strengthened link between Pemex and the Mexican sovereign, resulting in an improved Supervision, Linkage, and Support (OLS) evaluation for the company.
- Closer Alignment with Sovereign Rating: Fitch now rates Pemex just one level below Mexico’s sovereign rating, compared to two levels previously. This change led to the upgrade.
Fitch’s Continued Concerns
Despite the rating improvement, Fitch still views Pemex’s financial profile as “weak,” citing liquidity limitations and low production levels. The agency also warns about the risk of overinvestment in strategic assets, both in exploration and refining.
Government Initiatives to Support Pemex
In response to operational and financial challenges, the Mexican government has implemented legislative measures allowing Pemex to share its debt limit with the Secretariat of Finance and Public Credit (SHCP). The P-Cap transaction significantly addresses Pemex’s short-term obligations, demonstrating increased government oversight and improved decision-making.
Capitalization and Financing Plan
Mexico’s President, Claudia Sheinbaum, and Secretary of Finance, Edgar Amador Zamora, presented an integral capitalization and financing plan aiming to ensure Pemex does not require government financial support by 2027. Their goal is for Pemex to cover its operational expenses independently and reduce its debt to $77.3 billion by 2030.
Key Questions and Answers
- What is Petróleos Mexicanos (Pemex)? Pemex is the state-owned petroleum company in Mexico, responsible for oil and natural gas exploration, production, refining, and marketing.
- Why is Fitch upgrading Pemex’s credit rating? Fitch upgraded Pemex’s ratings due to the successful execution of a $9.9 billion bond offering, increased government support, and closer alignment with Mexico’s sovereign rating.
- What concerns does Fitch still have regarding Pemex? Despite the rating improvement, Fitch views Pemex’s financial profile as weak, with liquidity limitations and low production levels. The agency also warns about the risk of overinvestment in strategic assets.
- What initiatives has the Mexican government taken to support Pemex? The Mexican government has implemented legislative measures allowing Pemex to share its debt limit with the Secretariat of Finance and Public Credit (SHCP). Additionally, a capitalization and financing plan aims to ensure Pemex’s financial independence by 2027.
