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06 Feb 2018
New York, February 06, 2018 -- Moody's Investors Service (Moody's) assigned a Baa3 senior unsecured rating
to Petroleos Mexicanos (PEMEX)'s issuance of 5.35% notes
in the amount of $2.5 billion due 2028 and to 6.35%
notes in the amount of $1.5 billion due 2048. The
company will use the proceeds of the notes for general corporate purposes,
including investments in strategic projects and debt refinance.
The outlook on the ratings is negative.
The notes 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 Baa3 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
as of December 31, 2016, as calculated by Moody's, amounted
to 8.3 billion boe, equivalent to 8 years of life; daily
production averaging 2,706 Mboe/d for the last twelve months ended
September 30, 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 negatively affected by a heavy tax
burden and the resulting weak free cash flow, high financial leverage
and low interest coverage. PEMEX's ratings also consider challenges
related to production, which, according to the company,
will reach a bottom level in 2017 and marginally increase starting in
2018. Production has been affected by the natural decline of certain
fields and a lower quality of crude oil as well as the company's limited
ability to invest efficiently given thin funding and lack of technological
expertise in deep waters, where future growth is located.
PEMEX's ratings consider Moody's joint-default analysis,
which includes Moody's 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 Baseline Credit Assessment (BCA), a measure
of credit risk regardless of assumptions of government support.
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. Moody's believes 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 16% of the
government's annual budget.
PEMEX has strengthened its liquidity position by contracting committed
long-term revolving credit facilities for a total of $8
billion, in US dollars and in Mexican pesos. In addition,
the company has a hedging program on crude production, which somewhat
reduces earnings volatility. However, PEMEX's liquidity position
is still weak: $8 billion in cash and equivalents,
as of September 2017, negatively compares to $4 billion in
debt coming due in 2018 and $8 billion in 2019. Management's
goal is to hold at least $4.5 billion in cash at all times.
The negative outlook on PEMEX's Baa3 ratings reflects Moody's expectation
that the company's credit profile could deteriorate more substantially
than the weakening incorporated into its b3 BCA if managerial and operating
discipline is lost along the way. However, Moody's could
revise the outlook to stable if PEMEX reverts the current trend of continued
increase in leverage and shows signs that it can improve its operating
and financial profile sustainably in the medium term.
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 debt, and increase cash generation.
Simultaneously, Moody's would have to at least maintain its 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.
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.
Founded in 1938, PEMEX is a Mexico's Productive State-Owned
Enterprise. Its oil dominant status will change with the continued
implementation of the 2013 energy law, although, in the foreseeable
future, the company will remain the main energy player in the country,
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, with approximately 50%
of its crude exported to various countries, mainly the US.
In September 2017, PEMEX posted $52.5 billion in revenues
and $123 billion in assets. As of the same date, PEMEX
produced 2,278 mbd of crude oil.
The methodologies used in these ratings were Global Integrated Oil &
Gas Industry published in October 2016, and Government-Related
Issuers published in August 2017. Please see the Rating Methodologies
page on www.moodys.com for a copy of these methodologies.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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 ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
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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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
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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