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Bond Market News
Pemex Downgraded to B+ by Fitch
July 17, 2023
Pemex was downgraded to B+ by Fitch citing its “continued weak operational performance” including lowering its ESG scores that could to further limit it sources of financing following multiple accidents since February 2023. Fitch notes that these accidents raise concerns over operational management and/or the lack of maintenance capex in its core assets. The underinvestment in these assets are mainly due to high debt service costs and need for the government to finance negative cash flows, Fitch adds. Pemex has offshore bond maturities of $4.6bn in 2023 and $10.9bn in 2024. Refinancing this will lead to a higher interest expense that would stress its cash flows and could worsen liquidity risk by end-2024. Over time, Fitch believes that the government will have to spend ~20bn more than it receives from the company in 2026 and 2027, to keep Pemex afloat.
Going by Fitch’s issuer ratings, Pemex’s is rated four notches below the Mexico sovereign (rated BBB-) mainly due to its financial distress, and weak ESG track record that hurts its ability to raise capital. The difference between the ratings and their implied credit risk can be seen in the chart below. Here we have plotted Pemex vs. the Mexican sovereign’s dollar bonds comparing their yields across tenors. Click on the chart below to view an interactive plot to compare their yields across tenors. To briefly summarize, the yield premium of Pemex’s 3Y notes over Mexico’s is ~300bp and it widens to 350bp for the 5Y tenor and over 450bp for the 10Y tenor.
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