Fitch downgrades Pemex debt rating to junk, Moody's awards negative outlook

Mexico City (AFP) –


The financial assessment agency Fitch Ratings downgraded Mexico state oil company Mexican Petroleum (Pemex) from BBB- to BB+ Thursday, while Moody's revised its outlook rating from stable to negative.

BB+ is considered a junk rating because of the struggling company's heightened risk of not paying its debt.

In a statement Fitch said, "Fitch Ratings has downgraded Petroleos Mexicanos' (PEMEX) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'BB+' from 'BBB-'. The Rating Outlook is Negative" due to Pemex's approximately $80 billion of unpaid debt.

Pemex, which President Andres Manuel Lopez Obrador has set out to save as it struggles with ongoing losses, is Mexico's largest public employer.

The BB+ rating is given to non-investment grade and speculative bonds known as "junk bonds" -- they have a high risk of default but offer a high profitability to compensate.

In a statement Thursday, Pemex called Fitch's new rating "excessively severe."

The company defended its record over the last six months, saying it had made "strong achievements" not seen in many years, including fighting fuel theft and stabilizing oil production.

"With the commitment and solidarity of every worker of this great company and with the dedicated support of the government of the republic, we will continue dedicating our efforts toward achieving our goals and demonstrating, with results, we are on the right track," the statment said.

- Mexico downgraded -

Fitch downgraded Mexico's sovereign credit rating from BBB+ to BBB Wednesday, while Moody's changed its rating for the country from "stable" to "negative."

The changes come amid tensions between Mexico and the United States, its main trading partner, around the latter's threats to ramp up tariffs on vital exports it says is in response to an ongoing migration crisis between the two countries.

"We changed the (Pemex) outlook to negative consistent with the change in Mexico's outlook, given the critical importance of the government's financial strength and support to PEMEX's Baa3 ratings," Pete Speer, Moody's senior vice president, said in a statement.

And Fitch said that Pemex's negative outlook "reflects the potential for further deterioration of the company's stand-alone credit profile."

"Although PEMEX has implemented some cost cutting measure and received moderate tax cuts from Mexico, the company continues to severely under invest in its upstream business, which could lead to further production and reserves decline," the statement said.

Pemex announced Wednesday that it had posted profits of $1.46 billion in April, stemming a stream of losses in the last six months.

The company must increase its assets to reverse a long-term decline in production, which has fallen from 3.4 million barrels per day in 2004 to an average of 1.6 million today.

Its $106.5 billion debt makes Pemex among the world's most-indebted companies.