Higher Oil Prices Secured Mexico's PEMEX A Quarterly Profit As Debt Swells

• Mexico's state oil company Petroleos Mexicanos (PEMEX) on Wednesday reported net profit of $722.5 million for the second quarter, swinging from a loss in the same period last year, thanks to higher crude prices and production. 
• The company said the 14.4-billion-pesos profit was driven by higher income from international sales, which doubled from a year earlier due to higher crude prices and a slight rise in oil volumes exported. 
• However, PEMEX's debt rose from the first quarter of the year, reaching $115.1 billion at the end of the April-to-June period due to the use of short-term financing. Despite this, PEMEX has said it will not resort to the bond markets this year for refinancing as it plans to receive capital injections from the government through the fourth quarter, which should lead to a net debt reduction, a long-standing but so far unfulfilled goal. 
• Given its weak liquidity, and negative free cash flow. which will rise in the next three years due to high debt maturities and lower operating cash flow derived from the expansion of its refining business, on July 27^th Moody’s downgraded PEMEX’s corporate family rating and the senior unsecured ratings on the company's existing notes, from Ba2 to Ba3 (S&P Equivalent: BB-). 
• The agency also maintained the negative rating outlook on PEMEX's Ba3 ratings primarily based on the negative outlook on Mexico's Baa1 rating given the importance of the sovereign's credit strength and ongoing support to PEMEX's ratings.

(Source: Reuters & Moody’s)