Moody's Sees No Rating Shift for Mexico, Pemex in Short Term

  • Pemex will likely need aid from government through 2018: Leos
  • Moody's to monitor nation's credit for up to 24 months

Moody’s Investors Service probably won’t change credit ratings in the near future for Mexico or state-owned oil company Petroleos Mexicanos, senior analyst Mauro Leos said.

Instead, the rating company will monitor their finances for the next 12 to 24 months to see whether government budget cuts will compensate for revenue weakness and to what extent support for Pemex will affect the nation’s fiscal accounts, Leos said in an interview with El Financiero Bloomberg TV’s Karla Palomo.

Moody’s slashed Pemex’s rating two notches last month to Baa3, one level above junk, and reduced the outlook for Mexico’s rating to negative from stable amid concern the government will have to provide financial support to its oil company. Pemex has $87 billion of debt and has reported 13 consecutive quarterly losses amid plunging oil prices and output.

“We will have to wait to see the results of budget readjustments and to what extent spending cuts can offset lower revenues,” Leos said. “Another aspect is how much the support to Pemex affects government finances. As far as concerns both Pemex and the government, we will be monitoring for a period of at least 12 to 18 months, or the 24 months for the government. I don’t expect that in the short term there would be additional changes."

The Mexican government will probably have to keep aiding Pemex through 2018, Leos said. The Finance Ministry announced Apr. 13 it will grant a hefty tax break and $1.5 billion to the oil producer to help it pay contractors. On April 1, Mexico said it planned to cut spending next year by an estimated 175 billion pesos after slashing the budget this year by 132 billion pesos.

Pemex’s management is working on plans to sell assets and reduce costs and is seeking joint venture partners to help revert declining production. It will be in ‘‘deep trouble” if it can’t find allies by next year, Chief Executive Officer Jose Antonio Gonzalez Anaya told Bloomberg in an interview on Tuesday.

“It won’t be easy, but this administration has a very clear view of what steps it needs to follow,” Leos said.

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