Mexico City — The board of directors of Mexico’s state-owned oil company Pemex will analyze the contract and performance of Moody’s over its rating decisions and the company’s credit outlook, Energy Minister Rocío Nahle García said in an exclusive interview with Bloomberg Línea.
“We are going to analyze it because we as a company do need serious rating agencies with an objective sense. Any company needs them, and I believe they must be up to the task. We are going to analyze it, we are going to talk about it with the board, definitely,” Nahle said.
On July 21, Moody’s changed its outlook for Pemex to negative from stable to its B1 rating, a speculative level, considered in the financial sector as a junk bond, due to the absence of fundamental changes in its business strategy.
The agency had withdrawn Pemex’s investment grade rating in April 2020 after three downgrades so far in the six-year term of President Andrés Manuel López Obrador.
Nahle commented that the cash flow of Pemex, the most indebted oil company in the world, is better than Moody’s recent evaluation, and its debt payment capacity is constant, in addition to the fact that Pemex’s functional currency is Mexican pesos and the debt in this currency, which has appreciated, represents close to 20% of the total.
When asked about the background with Fitch Ratings and the termination of the contract with Pemex in March 2021, Nahle specified that the board will not discuss the termination of the contract the company has with Moody’s to evaluate its credit rating because it would be “very radical”.
Nahle revealed that Moody’s has not consulted the Mexican government, Pemex’s board, the ministry or the treasury (SHCP), or treasury secretary Rogelio Ramírez.
“It does not seek voices within the government, be it the energy ministry, the finance ministry or the board of directors itself, then, based on the financial statements, it [Moody’s] goes and makes its rating logic, it is very unfortunate.”
Bloomberg Línea consulted Moody’s and the finance ministry on the subject, but the agency declined to comment and did not respond to a request for more information.
Regarding the Mexican government’s backing of Pemex’s financial commitments, Nahle said that they are binding entities, as is Saudi Aramco’s with the Kingdom of Saudi Arabia, a fact that in the case of the Middle Eastern oil company, Nahle said, no one questions and is considered a strength.
Pemex has increased production from 1.6 to 1.9 million barrels of crude and condensates, registering a marginal increase and stabilization of proven reserves at 7.4 billion barrels. The company has registered a 35% increase in its refining capacity during the six-year term of President Andrés Manuel López Obrador, whose energy policy pursues self-sufficiency in gasoline and diesel.
Refining
Moody’s downgraded Pemex’s rating in July 2021 and 2022 and has justified its downgrades on Pemex’s high liquidity risk and growing business risk, while the company faces high debt maturities and expands its refining and production capacity, a strategy that, according to the agency, will generate more operating losses in the short and medium term.
Nahle, who ordered the refurbishment of Pemex’s six refineries and the construction of the seventh, known as Dos Bocas, said that “the government is giving Pemex an investment of $15 billion” in the refinery without counting it as debt, but adding it as an asset and with a rate of return of 14%, which continues to rise in view of the world fuel deficit.
The chemical engineer recalled that Pemex invests more in exploration and production than in refining. The approved budget for Pemex is $25.8 billion in 2023, and the company’s E&P subsidiary takes 77% of the total, while its manufacturing subsidiary taking 18%, according to its most recent quarterly report.
“That is why it seems a bit informal or unethical to me that they have not approached the board precisely to discuss this, to see the margins they consider and those we have,” she said.
Although Pemex reported its first profits in the division in charge of refining oil in the first quarter of 2023 since it was created, in the second quarter it saw losses of $176 million.
Debt and rating
Pemex is burdened with a financial debt of $110.4 billion and has maturities of $4.1 billion this year and $11.2 billion more in 2024. Its CEO stated that the treasury will be in charge of covering them until the end of the six-year term.
The last time Moody’s upgraded the rating of the state-owned oil company was on June 19, 2014, and which was based on the fact that Pemex “will remain closely linked to the Mexican government, which will continue to provide it with strong support, given the importance of the company in the government budget”, despite the significant changes of the energy reform of former president Enrique Peña Nieto, which opened the sector to private investment and put an end to 75 years of Pemex’s monopoly.
The rating agency downgraded Pemex’s rating twice during Peña Nieto’s six-year term, but maintained its investment grade until April 2020, when it entered junk bond status in the midst of an unprecedented world economic crisis due to the Covid-19 pandemic.
Nahle questioned why the agencies did not rate Pemex more severely when it doubled its debt during Peña Nieto’s six-year term without significant investment.
“Why today that there is a change in policy, where there is investment, new infrastructure, a punctual payment of the debt that has not increased, why are we rated badly?” Nahle asked.
For his part, Pemex’s CEO Octavio Romero Oropeza said that the company rejects Fitch’s downgrade, recalling that it stopped servicing it since 2021 - and the change of outlook from stable to negative by Moody’s during July of this year.
“These agencies continue to lie about the lack of government support and the lack of actions on sustainability despite the positive results obtained during this administration,” Romero said during a call with analysts on Pemex’s financial results in the second quarter of 2023.
