Mexico rebukes ratings agencies after Pemex, CFE downgrades

Mexico’s President Andrés Manuel López Obrador (AMLO) dismissed the downgrade of state oil company Pemex’s debt to junk status by Fitch Ratings while Moody’s Investors Service put a negative outlook on the company’s credit.

State power utility CFE also saw its rating cut by Fitch and its outlook revised to negative by Moody's. The agencies said their actions fell out of their revisions on Mexico's sovereign ratings from earlier this week due to the state companies' strong links to the government.

AMLO's comments, and Pemex’s own defense, underscored the divide between the concerns of rating agencies and the government’s optimism that it has put the heavily-indebted NOC on a new path.

“We do not agree with the reports of the ratings agencies. I say again, they are using an outdated methodology, the methodology of the neoliberal period, which does not include the variable of corruption, among other things,” AMLO said at his morning press conference. AMLO has launched a campaign to curtail rampant fuel theft and claimed his administration is eliminating widespread corruption.

“I have my own data and elements that show the experts of the ratings agencies were not objective, they were not professional,” AMLO said. He said that rating agencies were not looking at the company’s efforts to start production at 22 new oil fields or how it has “stabilized” production.

Official Pemex data showed Mexico’s oil production slipped in April, falling 0.9% compared to the previous month and was down 10.3% from April 2018, reaching around 1.68Mb/d, though it was up by 52,000b/d from a low in January. 

Fitch cut Pemex’s debt rating to ‘BB+’ from ‘BBB-’ on Thursday, dropping the credit into speculative grade, and leaving with a negative outlook. Despite austerity measures and recent tax cuts, Fitch said Pemex could see further declines in output and reserve levels since it continued to “severely underinvest” in its upstream business.

Moody’s put a negative outlook on its 'Baa3' rating for Pemex, noting that planned investments “will still fall well short of replacing reserves in 2019 and 2020.” A cut by Moody’s would place Pemex in speculative grade on its scale and the sum of two agencies with junk ratings would push more conservative funds to dump Pemex bonds.

The moves followed Fitch’s decision on Wednesday to cut Mexico’s sovereign rating by one notch and Moody’s issuance of a negative outlook on the country’s debt.

The action's on CFE reflected its better standing than Pemex. Fitch cut its rating to 'BBB' from 'BBB+' while Moody's affirmed its 'Baa1' rating for the power utility, but switched the outlook to negative. 

Pemex said in a statement that Fitch’s downgrade was “excessively severe” and that it did not agree with "the assumptions that support Fitch Ratings’ decision.”

Pemex highlighted its efforts to battle fuel theft and noted it had not used debt to finance investment “for the first time in almost 10 years.”

The company said its increase in investment “strengthens our scenario for a recovery in oil production toward the end of the year and provides certainty to a sustained increase in production starting in 2020.”

Analysts have doubts that Pemex’s new drilling will overcome declines at major fields and lead to a significant increase in output.

Pictured: President Andrés Manuel López Obrador at his morning press conference, where he addressed recent actions by ratings agencies on Pemex. Source: President's office