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S&P downgrades debt-laden Mexican state oil firm Pemex

Petroleos Mexicanos, known as Pemex had its stand-alone assessment cut to ‘B-‘ from ‘BB-‘, a reflection of the growing concern that the government’s promise to bail out the floundering state oil company with $5.5 billion in additional funds this year will not be enough.

S&P also cut Pemex’s outlook to negative from stable, just as it did for the Mexican government late on Friday. The big difference was that S&P maintained the government’s investment-grade status at BBB+.

In a statement on Friday, the agency warned President Lopez Obrador that his plans to reduce the private sector’s role in the energy sector while trying to increase funding for Pemex raised concerns for government finances.

“The new strategy for the energy sector places an added burden on the already highly indebted government-owned energy company Petroleos Mexicanos,” S&P said in the statement, referring to Pemex’s official name.

“The combination of Pemex’s weak financial profile and a more active role in the energy sector could raise the risk of higher contingent liabilities for the sovereign,” it added.

Pemex posted net profits of 113 billion pesos ($6.2 billion) from January to March  up 29 percent f...

Pemex posted net profits of 113 billion pesos ($6.2 billion) from January to March, up 29 percent from the same period last year, and an improvement on its $18 billion loss in the last three months of 2017
OMAR TORRES, AFP/File


Increased scrutiny
In January, shortly after Lopez Obrador took office, Fitch Ratings cut Pemex’s credit rating two notches — putting it just one level above junk status. This is based on falling crude oil production for the past 14 years. Production is expected to dip again this year to below 1.8 million barrels per day for the first time in decades.

Pemex has struggled to stem a decade-long slide in production, which peaked at 3.4 million barrels per day in 2004. In 2018, Pemex reported it was able to maintain production levels at 2.15 million barrels a day.

S&P has also flagged Mexico’s “poorer-than-expected” economic growth, citing the centralization of “decision-making” under the new president. There is concern that this type of overseeing could weaken the macroeconomic stability of Latin America’s second-largest economy.

The overall bleaker outlook is also reflected by S&P lowering the outlook to “negative” from “stable” for Mexican telecoms giant America Movil, Coke bottler Coca-Cola Femsa, and upscale retailer Liverpool. The agency left the companies credit ratings unchanged.

In the fourth-quarter of 2018, Mexico’s economic growth slowed to 0.2 percent. This has already caused many economic forecasters to cut their projections for the coming year. Mexico’s finance ministry said it would not offer any reaction on Monday to the S&P move. Pemex declined to comment.

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We are deeply saddened to announce the passing of our dear friend Karen Graham, who served as Editor-at-Large at Digital Journal. She was 78 years old. Karen's view of what is happening in our world was colored by her love of history and how the past influences events taking place today. Her belief in humankind's part in the care of the planet and our environment has led her to focus on the need for action in dealing with climate change. It was said by Geoffrey C. Ward, "Journalism is merely history's first draft." Everyone who writes about what is happening today is indeed, writing a small part of our history.

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