Ratings agency Moody’s downgraded Mexican state-owned company Petroleos Mexicanos’ (PEMEX) by two notches from Baa1 to Baa3 with a negative outlook. The downgrade was attributed to lower oil prices, poor financial results and the possibility of the Mexican government providing financial support to the firm, all of which has negatively impacted Pemex.
Previously, Moody’s had downgraded Pemex to Baa1 from A3 in November 2015 and in January 2016, put it on review for a second downgrade.
On the earnings front, Pemex reported 13 consecutive quarterly losses since 2012 and generated losses amounting to $32bn across the FY 2015 period. Debt on the company’s books at the end of December 2015 was c.$8bn.
Further, the company announced in February 2016 that it would trim its 2016 budget by $5.8bn (MXP 100bn) to mitigate losses caused by falling crude oil prices.
Separately, Moody’s also lowered its outlook on the sovereign debt of Mexico (rated A3) amid subdued economic growth in the country. Oil, a key source of revenue for the country, has fallen sharply on lower demand globally, leading to the Finance Ministry of Mexico announcing budget cuts.
Moody’s expects the Mexican government to step in should Pemex face further financial difficulty.