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17 Jul 2017
New York, July 17, 2017 -- Moody's Investors Service (Moody's) says Petroleos Mexicanos
(PEMEX) reopening of the 6.5% global notes due 2027 and
6.75% global notes due 2047 has no effect on the notes existing
Baa3 ratings. The company will use the proceeds of the notes for
general corporate purposes, including investments in strategic projects
and debt refinance.
The outlook is negative.
The notes were issued by PEMEX and will be jointly and severally guaranteed
by the company's subsidiaries, namely Pemex Exploración y
Producción, Pemex Transformación Industrial,
Pemex Perforación y Servicios, Pemex Logística and
Pemex Cogeneración y Servicios.
PEMEX's ratings are based on the company's b3 baseline credit assessment
(BCA), which indicates Moody's view of its standalone credit
strength, and considers the company's large proved hydrocarbon reserves,
which in 2016 amounted to 8.6 billion boe, equivalent to
7.7 years of life, as per the company; oil production
averaging 2,382 mbd for the last twelve months ended March 31,
2017; a dominant role and integrated operations in the energy industry
in Mexico; and its position as a major crude oil exporter to the
US. However, the company's standalone credit assessment and
its ratings are affected by a heavy tax burden, weak cash flow,
and high financial leverage. PEMEX's ratings also consider challenges
related to production, which has been falling in the last several
years due to the natural decline of certain fields and a lower quality
of crude oil as well as the company's limited ability to invest efficiently.
PEMEX's ratings consider Moody's joint-default analysis,
which includes assumptions that there is i) a very high likelihood of
extraordinary support from the Government of Mexico (A3 negative) to avoid
default, and ii) a very high default correlation between PEMEX and
the government. The Baa3 rating incorporates six notches of uplift
from PEMEX's b3 BCA. Moody's view on the likelihood of support
considers the prominent role of PEMEX in the Mexican economy, its
100% government ownership, as well as both verbal support
and factual evidence of support in 2016 by the government. We believe
that it is important to the government to facilitate PEMEX's continued
access to the capital markets given the
company's role in generating hard foreign currency through oil exports
and in paying large annual amounts in duties, royalties and taxes
which in aggregate currently represent about 14% of the government's
PEMEX's liquidity position is weak. The company had USD 5.6
billion in cash and equivalents as of March 31, 2017, which
negatively compares to USD 4.8 billion in debt coming due in the
remaining of 2017 and USD 2.6 billion in 2018. Management's
goal is to hold at least USD 4.5 billion in cash at all times.
At current oil prices, Moody's expects the company to direct
around USD 10 billion to capital expenditures in 2017 vs. USD 8
billion in 2016.
The negative outlook for PEMEX's ratings reflects Moody's expectation
that the company's credit profile may deteriorate more substantially
than the degree of weakening that is incorporated in the b3 BCA.
However, we could revise the outlook to stable if the company manages
to reverse the current trend of increasing leverage and shows indications
that it can improve its operating and financial profile in the medium
Increasing liquidity concerns, further material increase in financial
leverage or significant deterioration in production could result in a
downgrade of PEMEX's BCA and debt ratings. In addition, because
PEMEX's ratings benefit from implicit support from the government of Mexico,
a downgrade of the government's rating or a change in Moody's assumptions
about government support could lead to a downgrade of PEMEX's ratings.
An upgrade of PEMEX's ratings is unlikely over the near term as
is indicated by the negative outlook. For an upgrade to be considered,
the company would need to significantly Improve its liquidity position
and operating profile, reduce leverage, and increase cash
flow. Simultaneously, we would have to at least maintain
Moody's current expectations for sovereign support. Improving
operating metrics and a lower tax burden that supports higher levels of
internal funding for capital spending and prospects for a solid trend
of increases in production and reserves could benefit the company's BCA.
Founded in 1938, PEMEX is Mexico's productive state-owned
oil company. The is the dominant energy player in the country,
with fully integrated operations in oil and gas exploration and production,
refining, distribution and retail marketing, and petrochemicals.
PEMEX is also a leading crude oil exporter, with approximately 50%
of its crude exported to various countries, mainly the US.
As of March 2017, PEMEX posted $62.7 billion in revenues
for the last twelve months and $118.5 billion in assets.
The methodologies used in these ratings were Global Integrated Oil &
Gas Industry published in October 2016, and Government-Related
Issuers published in October 2014. Please see the Rating Methodologies
page on www.moodys.com for a copy of these methodologies.
This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com
for the most updated credit rating action information and rating history.
Nymia C. Almeida
VP - Senior Credit Officer
Corporate Finance Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653
Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
No Related Data.
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