PEMEX Not Expected to Improve in 2021

PEMEX credit ratings will remain weak in the short and long-term future, reported Moody's. The agency said its vulnerability to low commodity prices will continue and it is probable the situation will not improve due to the negative outlook on Mexico's sovereign rating.

In April, Moody’s downgraded PEMEX's ratings to “Ba2” with a negative outlook following Mexico's downgrade, claiming that PEMEX maintains a negative outlook on its ratings as a result of the country's downgrade and negative outlook related to the government's financial strength and support in the assessment of PEMEX's credit risk, reported MBN.

During the Lopez Obrador administration, the government has implemented policies that seek to improve PEMEX's reputation; however, a combination of declining production, tax obligations and a high debt have weakened the company, which is considered one of the main sources for federal budget revenues, reported Reuters.  

Moreover, the agency explained PEMEX is highly dependent on the government, therefore, a little change in the administration could lead to a greater downgrade for the company. However, if the national debt decreases, the NOC's baseline credit assessment would improve and therefore, it could maintain a Ba2 rating.

Moody's said that by 2021, PEMEX will have a similar amount of cash needs, which will include US$6,000 of maturities. Moreover, many of these maturities are now considered as “junk” territory and are expected to be mitigated by government actions and an increase in the NOC's debt, reported Forbes.

The solution and control of these maturities will depend on PEMEX access to debt capital and the government support. PEMEX will need US$14,700 million from the government for 2021, which is highly above PEMEX expected availability in credit lines, reported Forbes.

The NOC struggles paying a financial debt of US$110.3 billion due to a 32 percent decrease in sales, a 41 percent reduction in domestic sales and an 18.6 percent decrease in exports. The government is aiming to reduce its debt; however, paying US$110 billion is not a viable in the short-term aim. As a result,  the government has carried out several actions to lessen the NOC's financial situation, like the US$5 billion cash injection and a further US$4.4 billion contribution through cash and profit-sharing duty reductions to strengthen the company, reported MBN.

Nevertheless, the company is still in negative numbers and other agencies like Moddy's rating and HR Rating expect major financial problems for PEMEX in 2021. This month, HR rating reported the NOC increased its financial deficit and therefore, it has become a net loss for Mexico, reported MBN.

The agency said that the financial deficit was highly related to the federal government's fiscal policy, the macroeconomic environment and a weakened position in the national market. The government tried to compensate this decrease in sales by a tax reduction of MX$67.1 billion (US$3.3 billion) and by an increase in profits, mainly due to government transfers totaling MX$113.9 billion (US$5.6 billion). However, these measures were not enough.

HR Ratings said that even if demand returns to pre-pandemic levels, PEMEX's recovery will depend on recuperating some markets the company has transferred to individuals and privates, reported MBN.