Bloomberg — Bonds from Mexico’s state-owned oil giant were the biggest losers in Latin America on Monday after Fitch Ratings cut the company deeper into junk and kept a negative outlook on the debt.
Notes due in 2025 from Petroleos Mexicanos fell 1.6 cent to about 95 cents on the US dollar as of 11 a.m. New York time, according to Trace data. The extra yield investors demand to hold Pemex bonds over the sovereign also edged higher Monday.
Fitch cut the oil driller’s credit score on Friday by a notch to B+, four levels into junk, saying the company’s oil production won’t grow and that recent accidents have called into question its operational capacity as the debt load mounts.
“Pemex was facing issues even before the downgrade,” said George Ordonez a strategist at BBVA. “Most are already quite full on the name and finding the marginal buyer was becoming a challenge in the face of ESG and lack of catalysts overall.”
Even more concerning is the credit assessor’s decision to keep a negative outlook on the company, leaving the door open for further cuts, Ordonez said. Moody’s Investors Service rates Pemex at B1, the equivalent of Fitch’s score. S&P Global Ratings has it as BBB, two levels above junk.
Some of the world’s largest money managers, including Pimco, have shunned Pemex debt as President Andres Manuel Lopez Obrador, a staunch supporter of the driller, is set to leave office next year. That’s as the company owes $107.4 billion, making it the most indebted oil major in the world. Fitch expects production to remain flat at 1.8 million barrels of oil equivalent a day.
“Pemex is a long-term story that needs to be corrected,” said Sergey Goncharov, an investor at Vontobel Asset Management in Miami. “It’s obvious to everyone, including the government itself.”
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