PEMEX’s Credit Rating Backed by Federal Support

In an effort to tackle its US$6 billion due debt payments for 1Q23, PEMEX placed bonds worth US$2 billion to refinance the endeavor. Credit rating firms S&P, Moody’s and Fitch noted that the NOC’s ranking is backed up by government support, though they evaluated the bonds as speculative due to the state company’s complicated financial situation.

The International Finance Review (IFR) reported that PEMEX offered a 10.275% return rate for these bonds, whereas sovereign bonds were listed at 5.64%. Similarly, PEMEX’s bonds released in September 2022 had a 7% return rate. According to experts, financing has become more expensive due to inflation, which puts the company in a challenging position.

The NOC faces debt payments of US$10 billion in 2023. The placement agents were Barclays, BBVA, J.P. Morgan, Mizuho, Santander, Scotiabank and SMBC. 

According to Moody’s, Mexico’s government support for PEMEX will likely increase over the next couple of years. The firm assigned a B1 rating to PEMEX’s long-term notes. “The stable outlook on PEMEX's ratings is based on Moody's expectation that the company's business strategy and financial profile will remain unchanged in the next 12-18 months; it also considers the current stable outlook on Mexico's ratings,” reported the firm. B ratings assigned by Moody’s represent a high credit risk and are deemed speculative.

Similarly, S&P rated the placement BBB, which indicates that the debt is considered to be solid but in case of a change in economic conditions or other factors, the indebted entity may encounter difficulty in meeting its financial obligations. S&P added that it hopes and expects the NOC to be strongly backed up by the government in fulfilling its financial obligations in case of difficulties.

Fitch Ratings said Mexico has strong liquidity despite a challenging environment. The firm rated Mexico’s corporations as BBB-Stable, still an investment grade but one with high risk. Fitch believes that “corporates will be able to handle upcoming debt maturities.” However, this outlook excludes PEMEX, which faces a BB-Stable ranking, which is a non-investment grade level, granted in March 2022. “[The rating] reflects PEMEX's elevated and rising leverage levels, limited financial flexibility, high tax burden and high investment needs to maintain production and replenish reserves,” reported Fitch.

President López Obrador announced that Mexico’s government will support PEMEX in paying off its billions of debt for 1Q23. Additionally, Mexico’s Deputy Minister of Finance, Gabriel Yorio, discussed financial tools to support the NOC. The ministry also reported that PEMEX’s contribution to its shared utility right (DUC) fell from 65% at the beginning of the administration to 40%, which freed up liquidity ranging from MX$3 billion (US$159.52 million) to MX$4 billion (US$212.69 million) for PEMEX. Yorio also mentioned that government assistance did not negatively affect PEMEX’s credit rating.