Jacob Brown
Moody’s, the renowned rating agency, made a significant move on Friday by downgrading the rating of Mexico’s state-owned oil company, Pemex (PEMX.UL), by two notches from B1 to B3.
This downgrade, reflecting a deteriorating credit quality, highlights growing concerns surrounding Pemex’s financial stability.
Reasons for Downgrade:
The downgrade by Moody’s stems from several factors, including Pemex’s substantial financial liabilities exceeding $100 billion, making it one of the world’s most indebted oil companies.
Moreover, Moody’s has a negative outlook for Pemex, expressing apprehensions about the company’s reliance on high government support, which could be jeopardized by Mexico’s deteriorating fiscal conditions expected in 2024.
Fiscal Challenges and Government Support:
Moody anticipates a significant increase in Mexico’s fiscal deficit due to various factors, including escalating borrowing costs, extensive social spending, and ambitious government projects.
This heightened fiscal pressure may impede the government’s ability to continue supporting Pemex substantially.
Additionally, Moody predicts that the costs associated with supporting Pemex will escalate further, posing challenges for the incoming administration set to take office in October.
Recent Developments:
The downgrade coincides with Mexico’s government’s decision to oust a hydrogen plant at a Pemex refinery, previously sold to France’s Air Liquide during the previous administration.
This move adds another layer of complexity to Pemex’s challenges and underscores the government’s efforts to assert control over critical assets within the energy sector.
Implications and Outlook:
Moody’s downgrade underscores Pemex’s precarious financial position and raises concerns about its ability to navigate ongoing fiscal challenges.
The negative outlook suggests continued uncertainty surrounding Pemex’s creditworthiness, with potential implications for investors and stakeholders.
As Mexico grapples with fiscal pressures and evolving energy policies, the fate of Pemex remains a focal point for economic stability and energy security in the region.
