Recent measures from Mexico for Pemex are not enough

The measures announced by President Lopez Obrador will allow Pemex to conserve more of its cash flow to invest in its business, but they are still far from the company's needs, says rating agency Fitch Ratings.

Summary

A package of financial measures announced this week by the Mexican government to support state oil company Pemex represents a step in the right direction, but they are far from the needs of the company.

The president of Mexico, Andrés Manuel López Obrador, announced on Monday measures to try to alleviate the finances of the indebted company, which is struggling to stabilize its production, including the renewal of lines of credit and the intention to gradually reduce its tax burden.

Fitch dropped the note of Pemex's debt to "BBB-" in January with a negative outlook. At that time, López Obrador said that the company was at its best in 30 years. The negative outlook implies a possibility greater than 50% that the rating agency can lower the company's grade again in the next 12 to 18 months.

The president said last week that Pemex and the energy ministry will take over the construction of a planned $ 8 billion refinery in the port of Dos Bocas, in his native state of Tabasco, given that the private sector was not adapting to deadlines or announced budget. That did not change Fitch's negative outlook.

Investors and rating agencies have expressed on several occasions their concern that the project will divert funds from Pemex's most profitable production and exploration unit, and that the recently announced measures will not be enough. Pemex must generate positive or neutral cash flow after taxes to stabilize its credit profile.

The potential need to support Pemex was also affecting the credit rating of Mexico, which has a "BBB +" rating with Fitch, with a negative outlook.

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