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Sunday, March 3, 2024

The uncertain fate of Pemex – El Financiero

Just another stripe to the tiger?

On February 9, the rating agency Moody’s decided lower Pemex’s credit rating. One more time. It is the third time in the six-year term.

Is it just another stripe to the tiger or does it mean something else?

Moody’s report indicates that the corporate debt rating was lowered to B3 from B1, and also reduced by two steps other valuations.

From the year 2020, Pemex debt lost investment grade for Moody’s.

That is, it was no longer an option for many investors.

Then, in 2021, the rating agency lowered the grade again and now in 2024, it does so again, in addition, with a negative perspective, that is, pointing out that it will most likely reduce it again in the future.

The agency has no ideological identification. Their conclusions are due to strictly financial factors.

What did Moody’s see that made you make your decision?

He considered the Pemex debt maturities for the next few years, which are of the order of 10,900 million dollars for this year and they reach a peak in 2026, of 13.6 billion dollars that year.

Next, evaluate the oil company’s ability to generate cash and note that the expansion of the refining business, that generates the bulk of the company’s losses, will limit the flow generation capacity.

In addition, it evaluates that there is a reduction in the investment rates planned for this year, which will also reduce its capacity to extract crude oil in the future.

Given this, he concludes, it will become necessary that the government continues with the support to the oil company. In fact, for this year, 8.5 billion dollars were budgeted for this purpose.

But, given the greater public deficit, The rating agency has doubts regarding the ability to continue providing this support in the future in the required magnitudes.

A scenario in which it has to be done is not impossible. a forced exchange of Pemex debt for public debt, which according to Moody’s definitions would be an event of default.

Regardless of whether or not they agree with Moody’s criteria (S&P, for example, does not agree and has maintained the investment grade for Pemex’s debt), it is a fact that unless there is a significant change in Pemex’s business model, going to require additional support from the federal government.

If public finances were comfortable, perhaps this fact would not be worrying.

The problem is that it is not like that. There is increasing pressures for the future, regardless of whether the constitutional reforms that have been proposed and that would require additional flows of resources are not approved.

It cannot be hidden from the markets that the great dilemma of the coming years will be Pemex.

Moody’s decision is only a wake-up call.

If Claudia Sheinbaum were the winner of the next electoral process, she would have a huge dilemma.

Yesterday, President López Obrador said that he hoped that the candidate would listen to him in many things, but not in everything.

There are issues that have nothing to do with the will of the candidate, but rather with the margins of maneuver that exist.

Pemex’s strategy in this administration was the obsession of a Tabasco native, from a person who grew up in the boom oil in the times of Cantarell and Koo-Maloob-Zaap, and continued thinking that Pemex could continue the trajectory it had in the 80s, with exceptional fields that appear once in history.

If we assume that Claudia would win the June 2 election, she has a challenge that should keep you up at night.

He needs to throw away AMLO’s strategy and develop his own, thinking about making Pemex viable, without it going under, taking with it public finances and spoiling his six-year term from the beginning… but without creating a conflict with AMLO.

What a dilemma.

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