New York, October 11, 2016 -- Moody's Investors Service (Moody's) assigned a Baa3 senior
unsecured rating to Petróleos Mexicanos (PEMEX)'s $2.1
billion notes due 2023 and $3.5 billion notes due 2047.
About $3.1 billion will be used to tender notes maturing
in 2018 and 2019 and to exchange notes maturing in 2044. Another
$2.5 billion will fund the company's 2017 capital
investments.
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.
RATINGS RATIONALE
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 in 2015 amounted to 9,632 million boe, equivalent to
8.1 years of life, as per PEMEX; oil production averaging
2,237 mbd for the last twelve months ended June 30, 2016;
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 increasingly
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 the rating agency'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 BCA. Moody's view on
the likelihood of support considers the prominent role of PEMEX in the
Mexican economy, its 100% government ownership, and
both verbal statements and recent factual evidence of support of the government
for the company. 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 12% of the
government's annual budget.
PEMEX's liquidity position is weak. The company's close to $10
billion in cash and equivalents as of June 30, 2016 negatively compares
to $8.8 billion in debt coming due in the second half 2016
(86% of which to financial institutions), $6.5
billion in 2017 and $6.1 in 2018, pro forma for the
new notes. Management's goal is to hold at least $4.5
billion in cash at all times. Moody's expected the company
to direct around $10 billion to capital expenditures in 2016,
but capex reached only about $3 billion in the first half of 2016.
During the year, PEMEX has tapped both global and local capital
markets as well as certain banking credit lines to raise the equivalent
of around $19.5 billion, enough to fund its needs
for the year, tender a portion of 2018 and 2019 notes, and
exchange the 2044 global notes. PEMEX has raised funds in Mexican
pesos, US dollars, Swiss francs and Japanese yens.
In April 2016, PEMEX received MXN 27 billion in cash infusion by
the Mexican government. In addiiton, PEMEX benefited by the
raising of tax-deductibility ceiling on the company's oil and gas
production in shallow waters and onshore fields, which would generate
about MXN 50 billion in annual savings (this estimate is based on an average
price of $25 dpb for the Mexican crude oil basket, which
in September was at about $34 dpb, implying the possibility
of higher savings going forward). Liquidity was also supported
by the MXN 100 billion budget cut as requested by the government early
in the year. Going forward, the company may also choose to
sell non-strategic assets or use Fibra E (Mexican MLP-type
of financial instruments) to raise funds to reduce debt financing needs.
However, Moody's believes that some funding alternatives will
continue to be difficult to execute due to the relatively short experience
under the 2013 energy law. In addition, depending on how
Fibra E is structured, it could constitute debt under Moody's
adjustments methodology.
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, Moody's 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 term.
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, 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 baseline
credit assessment.
Founded in 1938, PEMEX is Mexico's productive state-owned
oil company. Its monopoly status will change with the continued
implementation of the 2013 energy law, although, in the foreseeable
future, the company will remain 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 June 2016, PEMEX posted $61.3
billion in revenues for the last twelve months and $111.4
billion in assets. As of the same date, PEMEX produced 2.2
mbd of crude oil and had total proved reserves of 9.632 MMboe equivalent
to 8.1 years of reserve life. During 2015, the company's
revenues and its tax payments amounted to about 12% of the government's
annual budget.
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.
REGULATORY DISCLOSURES
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
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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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
the rating.
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
Mexico
JOURNALISTS: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700
Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300
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