PEMEX Recovery Derailed by High Government Take Despite Strong Oil Prices  

 

• Fitch Ratings reported that Petroleos Mexicanos (PEMEX) has failed to leverage elevated oil prices to strengthen itself and evolve into a sustainable, reliable energy company due to a stubbornly high government take.
• Saverio Minervini, Head of Latin American Energy, Utilities, and Natural Resources Corporates noted that “PEMEX faces a mountain of maturities in a higher rate environment that will further squeeze its profitability and ability to effectively invest. This will pressure the government to provide further support through an equity injection or to lower its take from the company.”
• Notably, Pemex’s ‘BB-’ rating is three notches below Mexico’s (BBB-/Stable) due to weak government support, which to date has been insufficient and uncertain.
• For PEMEX to be upgraded, the company’s Standalone Credit Profile would need to improve to ‘b’ from ‘ccc-’. This could only be achieved through a combination of massive debt repayment or a significant reduction in the government’s take from the company via taxes, royalties, and other measures, including consistent government support.
• Mexico’s government has financially supported PEMEX by cutting its effective tax rate, injecting more capital into the company, and devoting a greater share of public investment toward PEMEX and energy-related projects. However, the support has been insufficient and has not improved the company’s credit profile.
• The continued need for fiscal resources has led to a negative notch adjustment for the sovereign rating assessment, as the support is likely to negatively affect public finances. However, Fitch does not expect further deterioration of the sovereign rating in the near term due to PEMEX’s financial position.

(Source: Fitch Ratings)