Bonds of Mexico’s state oil giant were the biggest losers in Latin America on Monday after Fitch Ratings downgraded the company to junk and maintained a negative debt outlook.
Petroleos Mexicanos notes due 2025 fell 1.6 cents to about 95 cents on the U.S. dollar at 11 a.m. New York time, according to Trace data. The extra yield that investors demand to hold Pemex bonds over the sovereign also rose on Monday.
Fitch on Friday cut the oil driller’s credit rating by one notch to B+, four notches from junk, saying the company’s oil production will not grow and that recent accidents have cast doubt on its ability to operate in as the debt burden increases.
“Pemex was facing problems even before the downgrade,” said George Ordóñez, BBVA strategist. “Most are already pretty full of names and finding the marginal buyer was becoming a challenge given ESG and the lack of catalysts in general.”
Even more troubling is the credit adviser’s decision to maintain a negative view of the company, leaving the door open for further cuts, Ordóñez said. Moody’s Investors Service rates Pemex at B1, the equivalent of Fitch’s rating. S&P Global Ratings has it at BBB, two levels above junk.
Some of the world’s biggest money managers, including Pimco, have avoided Pemex’s debt as President Andrés Manuel López Obrador, a staunch supporter of the driller, steps down next year. In this way, the company owes 107,400 million dollars, which makes it the most indebted oil company in the world. Fitch expects production to remain flat at 1.8 million barrels of oil equivalent per 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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