Fitch Ratings Downgrades PEMEX’s Credit Rating

Fitch Ratings recently downgraded PEMEX's credit rating and ESG score, citing weak operating performance and upcoming debt maturities in 2023. This downgrade is expected to limit PEMEX's access to additional credit and concessions, placing further strain on its liquidity.

Fitch assigned a Rating Watch Negative (RWN) to the NOC, expressing concerns about the country’s ability to improve PEMEX's liquidity and capital structure without requiring concessions from creditors. Additionally, Fitch downgraded about US$80 billion of PEMEX's international outstanding notes, leading to higher interest rates for debt refinancing and placing pressure on cash flow. The NOC faces significant debt bond maturities of US$4.6 billion in 2023 and US$10.9 billion in 2024.

Fitch also lowered PEMEX's ESG Relevance Scores to 5, which will further restrict its access to financing. This rating aligns with the environmental and social impact resulting from several accidents reported by PEMEX in 2023.

The key drivers influencing Fitch’s rating assessment include a weakening linkage to sovereign rating, PEMEX’s operational track record, funding needs and government liability. 

PEMEX's operational track record has been negatively impacted by multiple fires reported at critical assets, resulting in significant incidents and the tragic loss of employees' lives. These accidents can be largely attributed to underinvestment in maintenance.

Moreover, PEMEX faces significant funding needs, requiring support from its shareholders and creditors to manage debt maturities. In this context, the NOC relies heavily on international capital markets. Refinancing costs and increasing interest expenses pose challenges, with estimated interest expenses reaching nearly US$13 billion by 2025. PEMEX’s growing liabilities make it a burden for the government, reports Fitch. However, the government's financial support will be crucial for PEMEX, given the negative cash flows and diminished available funds for government take and capital expenditures.

PEMEX’s linkage to the Mexican government is unfavorable compared to other NOCs in the region.  Fitch recognizes that other governments have implemented successful measures to ensure their oil and gas industries remain viable. Unlike PEMEX’s weak capital structure, Ecopetrol and Petrobras have maintained stable operating profiles thanks to strengthened capital structures on the back of strong federal support.