Mexico Gets Downgrade From Credit Traders as Pemex Woes Escalate

  • Country trades closer to nations rated one level lower
  • State oil producer Pemex debt on track to surpass $100 billion

To credit traders, Mexico is no longer worthy of its credit rating.

The cost to protect Mexico’s bonds against default for five years has jumped twice as much as the average average for countries that share its BBB+ rating from Standard & Poor’s. At 2.18 percentage points, Mexico is now closer to the average for nations rated one level lower than current peers Poland, Spain and Iceland.

Oil’s collapse is pummeling Petroleos Mexicanos, the state-owned crude producer, and fueling concern that Mexico may have have to step in to provide financial support at a time when the nation faces spending cuts, said Alejandro Padilla, a strategist at Grupo Financiero Banorte SAB. Pemex, as the company is known, is set to surpass $100 billion in total debt this year after it increased borrowing in recent years to stem output declines. The price of Mexico’s crude-export mix has fallen 67 percent in the last year and a half.

“Investors are worried about how Pemex is going to be financed going forward, because they have a lot of important needs and we’re in an environment of low oil prices,” Padilla said. “This is the primary issue, and it’s being reflected in the risk premium that we’re seeing for Mexico.”

Alberto Torres, Mexico’s public debt chief, said Mexico’s credit rating is still appropriate and that the higher levels of credit-default swaps are a response to external events, including falling oil prices and concern about a potential growth slowdown in China. The swaps should return to their prior levels once global volatility eases, Torres said in a phone interview.

President Enrique Pena Nieto last week tapped Jose Antonio Gonzalez Anaya, a former deputy finance minister, as Pemex’s new chief executive officer, tasking him with the job of cutting costs and improving productivity.

Mexico’s peso rose 0.6 percent to 18.7667 per dollar at 9 a.m. in New York.

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