Rating agencies differ over financial support for Pemex

The Mexican government’s latest move to help federal oil and gas giant Pemex deal with its US$111bn debt is dividing opinions, even among rating agencies. 

Fitch Ratings said Monday that it views as “positive” the 145bn-peso (US$8.3bn) cash injection the federal government included in the 2024 federal budget proposal for the company, which will also benefit next year through a cut in the amount assigned to profit sharing to 35% from 40%.

But while the move “improves transparency and indicates the willingness of the government to support Pemex more proactively and predictably,” Fitch said that “the funding does not fully address all of the company’s short-term capital needs.”

In contrast, Moody’s said Monday that the Pemex support – along with prioritizing funding for large projects and pensions – “denotes the government's intention to accept a high fiscal deficit (greater than 5% of GDP)” and is making the country’s spending options “more rigid.”

“In our opinion, these spending dynamics will reduce the government's fiscal space in the future,” Renzo Merino, VP and senior analyst at Moody’s Investors Service, said in a statement.

Moody's, Fitch and S&P have repeatedly said that Pemex's financial situation is unsustainable.

In early July, Moody’s lowered its outlook on Pemex's credit ratings to negative from stable. A couple of days later, Fitch slashed the company’s ratings and brought them further down the junk status ladder due to "continued weak operating performance.”

More than US$80bn in help

According to Mexican think tank IMCO, the administration of President Andrés Manuel López Obrador (AMLO) will have assigned by next year a total of 1.49tn pesos (US$86.8bn) to Pemex to deal with its financial problems.

“This implies an average of 249.1mn pesos per year,” it said in a report Tuesday, recalling that financial support started in 2019 and the think tank’s projection includes 2024 – the last year of the leftist leader’s six-year term. 

The projection includes almost 1tn pesos in reported cash flows, including the estimated 145bn pesos that were added to the 2024 federal budget proposal, but also other forms of financial support such as tax cuts not disclosed yet by the company. 

In its Q2 report, Pemex said that it had received 720bn pesos in government aid from 2019 to the end of the quarter, but it then confirmed during a call with analysts that the federal government would transfer an additional 64.9bn pesos. 

On July 26, CEO Octavio Romero Oropeza told reporters that the government would help because “Pemex's debt is the country's debt, they go together. It doesn't make any sense for Pemex to give money to the big finance companies, to the big banks” in the form of higher interest rates.

Financial support to Pemex during the AMLO term (includes estimates) 

2019 – 2H23	US$77bn	Includes US$42bn in federal aid reported by Pemex, while the rest is tax cuts estimated by Reuters.
July	US$4bn	Confirmed during the second quarter call.
2024	US$8.3bn	Included in the 2024 federal budget proposal and subject to approval in the lower house.

Lower spending budget

In its 2024 federal budget, the Mexican government also assigned Pemex a spending budget of 456bn pesos, its lowest in the López Obrador administration. In 2023, the company received a spending budget of 678bn pesos, for example. 

The budget must be approved by the lower house by November 15. While a heated debate is expected between the opposition and the governing Morena party, the latter and its allies have the majority needed to approve it. 

With reporting by Sharay Angulo