President López Obrador has slammed the Fitch ratings agency after it downgraded the credit rating of the state oil company yesterday to just above junk status.
Fitch cut Pemex’s Issuer Default Ratings (IDRs) for foreign and local currencies to BBB- from BBB+ and national long-term ratings to AA (mex) from AAA (mex), stating that the “downgrades reflect the continued deterioration of Pemex’s standalone credit profile” and that the company “has been technically insolvent since 2009.”
Fitch also changed its outlook for the company to negative from stable.
Pemex has US $106 billion in debt, more than any other state oil company in Latin America, which both Fitch and Moody’s have said is a concern for the company’s investment grade rating.
Fitch said in a statement that its new “ratings are constrained by Pemex’s substantial tax burden, high leverage, significant unfunded pension liabilities, large capital investment requirements, negative equity and exposure to political interference risk.”
At his morning press conference today, López Obrador lambasted Fitch, without citing its name, and other credit ratings for their assessment of the state oil company.
“What these organizations do is very hypocritical . . . They allowed the looting [of Pemex], they endorsed the so-called energy reform, they knew that foreign investment didn’t arrive and investment in Pemex didn’t increase and that was what caused the decline in petroleum production. And they never said anything,” he said.
“They maintained a complicit silence and now that we’re rescuing Pemex, they come out with their recommendations and . . . ratings of the performance of Pemex,” López Obrador added.
Asked a specific question about Fitch’s ratings cuts, the president responded: “Investors with ethics know very well that Pemex is a solid company because now it’s being managed with honesty.”
López Obrador questioned whether Fitch had considered the government’s crackdown on fuel theft before it released its new assessment.
“Did the ratings agency take into account, as the technocrats say, this variable? . . . We’re going to strengthen Pemex; public finances are going to be strengthened. Of course, they don’t like it!” López Obrador said.
The veteran leftist, who took office on December 1, charged that the corruption that has plagued Pemex for more than 30 years has now come to an end.
“It was a company that was looted in the neoliberal period, it was among the most looted, most corrupt companies in the world, and these corrupt technocrats took great pains to destroy Pemex but fortunately . . . the people of Mexico decided to implement a change, to remove the country from crisis and corruption and to rescue Pemex,” López Obrador said.
“And we’re going to achieve it . . . Those greedy people didn’t manage to completely destroy Pemex . . . It’s like when a band of criminals goes into a bank and starts to steal the money from the vaults and an alarm goes off – that was the July 1 election. They take what they can but they flee. But they didn’t manage to take everything. What they left is enough to take Pemex and the country forward.”
But investors are worried that the federal government won’t provide suppor to Pemex through the injection of fresh funds, Bloomberg reported.
“Investors have AMLO’s policy process under a microscope,” said Michael Roche, a strategist at Seaport Global Holdings in New York. “If the expected capital injection is not forthcoming then the market will build a higher political risk premium into the Mexico sovereign spread.”
The downgrade was not unexpected by finance department officials. An undersecretary at the Finance Secretariat said it was worrying but came as no surprise.