New York, December 07, 2021 -- Moody's Investors Service (Moody's) assigned a Ba3 senior
unsecured rating to Petroleos Mexicanos' (PEMEX) up to $1 billion
in proposed notes due 2032. The company will use the proceeds of
the notes to repay debt. The proposed notes will be jointly and
severally guaranteed by the company's operating subsidiaries, Pemex
Exploración y Producción, Pemex Transformación
Industrial and Pemex Logística. The rating outlook is negative.
Assignments:
..Issuer: Petroleos Mexicanos
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Assigned Ba3
RATINGS RATIONALE
PEMEX's Ba3 corporate family rating and caa3 BCA reflect Moody's view
that the company's liquidity needs and negative free cash flow will remain
high in the next three years due to high debt maturities and lower operating
cash flow derived from the expansion of its refining business, which
has generated operating losses in the last several years. Although
oil and gas production growth has been below management targets,
Moody's acknowledges that PEMEX has been successful in reverting production
and reserves declines in 2019-20 and believes that this trend will
continue in 2021-22. However, Moody's expects that
PEMEX's cash flow generation and credit metrics will remain weak in the
next three years as the company increases fuel production, while
grappling with limited capital investment ability, high debt maturities,
and volatile oil and fuel prices.
PEMEX's Ba3 rating takes into consideration Moody's joint default analysis,
which includes assumptions of very high government support in case of
need and very high default correlation between PEMEX and the government
of Mexico, resulting in six notches of uplift from the company's
caa3 BCA. Since 2016, the government has supported PEMEX
in various ways, including capital injections, tax reductions
and early redemption of notes receivable from the government. By
the end of 2021, the government will have supported PEMEX with close
to $20 billion between tax reductions and capital injections,
for capital investments and debt payments. The government has stated
its intention to continue to support PEMEX's debt payment obligations
in 2022 and 2023. The support from the government will allow PEMEX
to reduce its debt in 2021-23.
PEMEX has weak liquidity and is highly dependent on government support.
On September 30, 2021 PEMEX had $2 billion in cash and currently
has around $300 million in available committed revolving credit
facilities to address over $7.7 billion in debt maturities
from October 2021 to the end of 2022, besides substantial negative
free cash flow in the period, driven by insufficient operating cash
generation to pay taxes and invest in capital.
The negative rating outlook on PEMEX's Ba3 ratings is primarily based
on the negative outlook on Mexico's Baa1 rating given the importance of
the sovereign's credit strength and ongoing support to PEMEX's ratings.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
A downgrade of Mexico's Baa1 rating would likely result in a downgrade
of PEMEX's rating. For Moody's to consider an affirmation of PEMEX's
Ba3 rating following a sovereign downgrade, the company's BCA would
have to substantially improve. Factors that could drive a higher
BCA would be the ability of the company to (i) strengthen its liquidity
position (ii) internally fund enough capital investment to fully replace
reserves and deliver modest production growth and (iii) generate free
cash flow for debt reduction. Because PEMEX's ratings are highly
dependent on the support from the government of Mexico, a change
in assumptions about government support and its timeliness could lead
to a downgrade of PEMEX's ratings.
Further downgrades in the company's BCA could also lead to further downgrades
of PEMEX's ratings. Factors that could lead to a lower BCA include
material increase in net debt, an operating performance worse than
forecasted, reserves decline and decreases in reserves life.
An upgrade is unlikely in the near term given the negative outlook for
Mexico's Baa1 rating and Moody's expectations for continued negative free
cash flow at PEMEX.
The methodologies used in this rating were Integrated Oil and Gas Methodology
published in September 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1172345,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
Founded in 1938, PEMEX is Mexico's national oil company, with
fully integrated operations in oil and gas exploration and production,
refining, distribution and retail marketing, as well as petrochemicals.
PEMEX is also a leading crude oil exporter, around 60% of
its crude is exported to various countries, mainly to the US and
Asia. In the nine months ended September 30, 2021 the company
produced an average of 1,745 thousand barrels of per day of crude
oil (excluding partners).
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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same series, category/class of debt, security or pursuant
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issued on a support provider, this announcement provides certain
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support provider and in relation to each particular credit rating action
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provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
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to rated entity, Disclosure from rated entity.
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review.
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and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
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The Global Scale Credit Rating on this Credit Rating Announcement was
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Nymia C. Almeida
Senior Vice President
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
Mexico
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Marcos Schmidt
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 0 800 891 2518
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