Fitch issues more downgrades, this time for Pemex, electricity commission

Oil company's rating cut to BB-, CFE's to BBB-, a notch away from junk

Two days after cutting Mexico’s sovereign rating to just one level above non-investment grade, Fitch Ratings downgraded both the state oil company Pemex and the Federal Electricity Commission (CFE) on Friday.

The one-notch cut for Pemex takes the company even further into junk territory. Fitch first downgraded Pemex to speculative grade BB+ in June last year, while just two weeks ago it cut the company’s rating to BB.

Today’s additional cut leaves Pemex with a long-term rating of BB- with a stable outlook. Fitch also cut CFE’s rating by one notch to BBB-, the agency’s lowest investment-grade level.

“Pemex and CFE’s rating downgrades reflect these companies’ direct linkage to Mexico’s sovereign ratings,” Fitch said in a statement.

It downgraded Mexico’s long-term rating on Wednesday to BBB- with a stable outlook due to fears that the coronavirus pandemic will cause a “severe recession” in the Mexican economy.

The rating agency noted that the state oil company’s rating is three notches below Mexico’s sovereign rating, explaining that its latest downgrade was the “result of the continued deterioration of its stand-alone credit profile (SCP) … amid the downturn in the global oil and gas industry, Fitch’s lower oil price assumptions and the weakening credit linkage between Mexico and Pemex.”

“Pemex’s SCP deterioration reflects the company’s limited flexibility to navigate the downturn in the oil and gas industry given its elevated tax burden, high leverage, rising per-barrel lifting costs and high investment needs to maintain production and replenish reserves,” Fitch said.

The company is saddled with US $105 billion in debt and is predicted to see a decline in its oil revenue due to low prices even though it is partially protected by a large hedging program.

The price of Mexico’s export crude plunged to its lowest level in 21 years late last month at $10.37 per barrel. It closed 37% above that level on Thursday but at $14.17 per barrel is a long way short of the $55 per barrel price seen in the middle of January.

The company’s production cost last year was $14.20 per barrel.

CFE’s rating, Fitch said, is the same as that of the sovereign “given its strong linkage to the government and the company’s SCP.”

The utility reported in February that it had overdue customer debt of 55 billion pesos (US $2.3 billion) at the end of 2019, a 22% increase compared to the end of 2018.

Source: El Financiero (sp) 

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