Mexico was dealt another ratings blow today: Fitch Ratings downgraded Pemex to junk status, reducing its credit rating from investment grade to speculative with a negative outlook.

The new rating of BB+, down from BBB-, follows yesterday’s downgrade of Mexico’s sovereign debt from BBB+ to BBB.

“Although Pemex has implemented some cost-cutting [measures] and received moderate tax cuts from Mexico, the company continues to severely underinvest in its upstream business, which could lead to further production and reserves decline,” Fitch said in a statement.

“The very high level of transfers from Pemex to the Mexican government continues to significantly pressure Pemex’s cash flow generation and reinvestment ability and weaken its standalone credit profile,” it added.

The downgrade had been anticipated by some investors but perhaps not quite so soon.

Reuters reported earlier today that investors at six of the world’s largest asset managers, all of whom own Pemex bonds, expected them to be downgraded to junk status within months.

If one of the two other ratings agencies follows Fitch’s lead— Moody’s currently rates the bonds at one level above junk — there would be a sell-off of up to US $16 billion by investors who are required to hold investment-grade bonds.

Reuters said if that were to happen Pemex would become the largest fallen angel — a borrower that descends from investment grade to junk — in history.

It would also wreak havoc for President López Obrador’s ambitious social spending plans, because the government would be forced to make spending cuts.

Alfonso Romo, the president’s chief of staff, said earlier today that the government would have to work hard to win back the confidence of the ratings agencies. The work will now be even harder.

Source: Reuters (en), Financial Times (en)