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Related Issuers
Rating Action:

Moody's assigns Ba3 rating to PEMEX's proposed notes due 2029

31 May 2022

New York, May 31, 2022 -- Moody's Investors Service ("Moody's") assigned a Ba3 senior unsecured rating to Petroleos Mexicanos' ("PEMEX") 8.750% $2 billion new notes due 2029. The company will use the proceeds of the notes for general corporate purposes, including the reduction of accounts payable to large suppliers. The new notes will be jointly and severally guaranteed by the company's operating subsidiaries, Pemex Exploración y Producción, Pemex Transformación Industrial and Pemex Logística. The new notes do not materially increase PEMEX's total debt or debt leverage, and Moody's expects that the company's total debt will remain stable or decrease somewhat by year-end 2022.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, despite currently higher oil prices than expected, due to high debt maturities and insufficient 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 2019-to date to post relatively stable production and reserves levels and believes that this will continue to be the case in 2022-23. 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 (Baa1 negative), 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. In 2021, the government 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. Moody's expects that support from the government will allow PEMEX to reduce its debt somewhat in 2022-23.

PEMEX has weak liquidity and is highly dependent on government support. On March 31, 2022 PEMEX had $2.4 billion in cash but no availability under its committed revolving credit facilities. The company needs to address around $12.6 billion in debt maturities from April 2022 to December 2023, besides substantial negative free cash flow in the period, driven by insufficient operating cash generation.

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.

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.

A rating 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://ratings.moodys.com/api/rmc-documents/64319, and Government-Related Issuers Methodology published in February 2020 and available at https://ratings.moodys.com/api/rmc-documents/64864. Alternatively, please see the Rating Methodologies page on https://ratings.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 three months ended March 31, 2022 the company produced an average of 1,755 thousand barrels of crude oil per day (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 on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement 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 case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of  the guarantor entity.  Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/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 office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

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
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653

Marcos Schmidt
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 0 800 891 2518
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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​
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