Fitch rates Pemex bond reopening 'BBB+'

Thursday, October 6, 2016

Fitch Ratings has assigned a long-term 'BBB+' rating to Mexican state oil firm Pemex's recent bond reissuance.

The NOC earlier this week announced a US$69.3mn reopening of its bond due 2023, and a US$1.5bn reopening of its 2047 bonds.

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Pemex expects to exchange the newly issued notes for other outstanding notes due 2018 and 2044, Fitch said.

"The ratings are constrained by Pemex's substantial tax burden, significant unfunded pension liabilities, large capital investment requirements, negative equity and exposure to political interference risk," Fitch said.

The state oil company's balance sheet has weakened as a result of tanking oil prices. During the past five years, Pemex's transfers to the government have averaged 49% of sales, or 126% of operating income, Fitch said, adding that these contributions, through royalties, exploration taxes and production duties, have averaged between 27% and 37% of government revenues.

The company has seen a significant increase in its debt, which lacks an explicit guarantee from the government, the agency said.

Leverage as measured by total debt-to-Ebitda was 6.6x. As of June 30, 2016, total debt was US$96.2bn.

The company reported an 83.5bn-peso (US$4.39bn) net loss in 2Q16.

Fitch expects Pemex's production to continue declining over the next few years as a result of capex cuts in exploration and development in order to counter the decline in oil prices while maintaining relatively high transfers to Mexico.

Pemex's budget sustained cuts in 2015 and this year. Its budget for 2017 has been cut by US$5.2bn.