Fitch Ratings Evaluates PEMEX New Designation as a Public Company

Fitch Ratings shared that it is assessing three different scenarios for the credit rating of PEMEX, following the Mexican government’s decision to reclassify the company as a public entity. According to the agency, this reclassification could lead to tighter supervision from the Ministry of Finance, potentially impacting PEMEX's debt issuance and financial strategies. However, it may also make it easier for the company to access government funding. Each scenario presents unique implications for PEMEX's credit rating.

The first, and most likely, scenario involves reclassification, alone. Under this scenario, Fitch could increase the score for PEMEX’s “Decision-Making and Oversight” subfactor, one of the four components that make up the Overall Support Score (OSS). A revision in this area would result in an increase from 25 to 32.5, according to Fitch’s “Government-Related Entity Criteria.” This change would prompt a shift in Fitch's rating approach, from the current bottom-up plus five approach to a top-down minus two. As a result, PEMEX's Issuer Default Rating (IDR) could be upgraded from ‘B+’ to ‘BB’.

The second scenario includes both the reclassification and the guarantee of over 75% of PEMEX's total debt by the government. Fitch’s criteria for Government-Related Entities (GRE) would likely lead to an equalization of PEMEX's corporate rating with that of the sovereign, resulting in a significant four-notch upgrade to ‘BBB-’ from ‘B+’.

The third scenario envisions a partial guarantee of PEMEX’s debt. This would yield a less significant rating benefit than the second scenario but would still result in a revision of both the “Precedents of Support” and the “Decision-Making and Oversight” subfactors. This would push the OSS from 25 to 35, with a shift in the notching approach from bottom-up plus five to top-down minus one. Consequently, the IDR would be upgraded to ‘BB+’ from ‘B+’.

In addition to these rating scenarios, PEMEX has reported progress in its operations. In 3Q24, the company achieved a refining milestone, processing an average of 1.258MMb/d. This marks a 100.31% increase compared to 2018 and is the highest volume recorded in the past decade. The National Refining System (SNR) processed an average of 962Mb/d, reflecting 53% growth under the current administration.

PEMEX’s financial management has seen improvement as well. With the support of the federal government, the company has managed its debt, reducing it to US$97.3 billion by Sept. 30, 2024, the lowest level since 2016. This marks a key achievement for PEMEX, especially considering the company’s ongoing efforts to stabilize its finances and expand its operational capacity.

The company is also aligning with the upcoming National Energy Plan, which will include an updated Business Plan aimed at strengthening PEMEX’s operations and financial standing. The planned update will integrate new projects and business opportunities in collaboration with the private sector to further position PEMEX as a modern, sustainable public enterprise.