Pemex Rating Cut by Moody's on Falling Output, Low Oil Prices

  • Moody's reduces company's ratings by one notch to Baa1
  • `Current weak credit metrics will deteriorate further'

Petroleos Mexicanos lost its highest credit rating ever as Moody’s Investor Service downgraded the state oil producer one level, citing a deteriorating credit profile because of lower crude prices, high taxes and falling production.

The cut leaves Mexico City-based Pemex at Baa1, the third lowest investment grade and one level below Mexico’s sovereign rating of A3. Moody’s outlook for the company is negative. The rating takes into account the Mexican government’s support for its national oil company, according to a statement announcing the downgrade.

Tuesday’s downgrade follows Pemex’s worst-ever quarterly result on Oct. 28, when it announced a net loss of $10.2 billion. The company, which is headed for an 11th consecutive annual drop in production this year, said total debt surged to a record $87.3 billion.

"Moody’s believes that Pemex’s credit metrics will deteriorate further in the short to medium term,” Nymia Almeida, a credit analyst at Moody’s, said in the statement. “The company’s credit metrics, particularly its financial leverage, will deteriorate further as debt is used to fund capex and taxes remain high.”

Following Moody’s downgrade, Pemex said that it had taken steps to improve its financial situation, including spending cuts and the renegotiation of pension liabilities. Legal changes that opened up Mexico’s energy industry and altered the rules governing Pemex “will make it possible to continue taking action to improve the company’s capital structure,” it said in a statement to Mexico’s stock exchange.

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