Fitch Anticipates Possible Upgrade for Pemex’s Rating; Here Are the Scenarios
The agency Fitch Ratings has indicated that it is considering three potential scenarios for making changes to Pemex's rating, following the Mexican government's interest in reclassifying the company as a public entity. In any of the three scenarios, Fitch expects an improvement in Pemex’s credit rating.
According to the rating agency, this new classification could lead to stricter oversight by the Ministry of Finance regarding Pemex’s operations and financial strategies. "This increased oversight could affect the company's ability to issue debt, while at the same time making it easier for them to access government financing," Fitch explained. In the first scenario, which only considers the reclassification, an increase in the subfactor "Decision-Making and Oversight" is anticipated, which is one of the components of the Overall Support Score (OSS). "This review could raise the OSS from 25 to 32.5 according to Fitch's 'Criteria for Government-Related Entities'. This change would initiate a modification in the adjustment method, shifting from a bottom-up approach plus five to a top-down approach minus two. Therefore, the Issuer Default Rating (IDR) would be adjusted to 'BB' from 'B+'. Fitch considers this the most likely scenario due to its easy implementation and low impact on the country's fiscal metrics, although Pemex would still remain in junk status. The second scenario involves reclassification alongside a debt guarantee covering more than 75% of its total liabilities, which would align its corporate rating with that of the sovereign and could result in an upgrade of four notches to 'BBB-' from 'B+', thus returning to investment grade. As for the third scenario, which contemplates a partial debt guarantee, this would improve the rating, although not as much as in the second case. It would also trigger a review of the subfactors "Support History" and "Decision-Making and Oversight". "This dual review could raise the OSS from 25 to 35, changing the escalation approach from a bottom-up plus five to a top-down minus one, which would elevate the rating from 'BB+' to 'B+'.
It is vital for Pemex, as one of the country's key companies, not only to maintain its rating but also to seek to improve it to facilitate its access to financing and thereby contribute to Mexico's economic growth. The decisions made by the government and the company in this process will be crucial for its future and for the overall economic stability of the country.
