Rating agency Standard & Poor’s (S&P) slashed the credit rating for Mexico’s national oil company Petroleos Mexicanos, or Pemex, piling more pressure on the government to tighten up the debt-laden oil firm’s finances.
S&P followed the Pemex cut with lower credit outlooks for a range of major Mexican financial institutions and companies, including telecommunications giant America Movil and Coca-Cola Femsa, the world’s largest Coke bottler.
The agency’s moves highlight overall concerns with the Mexican government’s debt load and spending plans that were raised when S&P lowered the government’s credit outlook to negative on Friday.
S&P cut its stand-alone assessment of Pemex to ‘B-‘ from ‘BB-‘, reflecting growing concern that financial support pledged by the government to shore up the firm and its slowing production will not be enough.
The agency also cut Pemex’s outlook to negative from stable while keeping its global investment grade rating at ‘BBB+’, in line with the Mexican government.
The bleaker outlook reflects concern that the government’s plan to clean up Pemex’s finances is insufficient, S&P said, adding that the company is exposed to political decisions that could conflict with its financial objectives.
“The government’s financial support, in order to restore credit fundamentals, falls well short of the company’s multi-annual capital investment needs,” S&P said in a statement.
Citing the fiscal pressures facing Mexico’s government and economy, S&P later also lowered the outlook to “negative” from “stable” for America Movil, Coca-Cola Femsa, and upscale retailer Liverpool, but kept their ratings unchanged.
The lowered outlook reflects the exposure that these companies face from the government’s financial vulnerabilities, describing firms in telecommunications and beverages as “moderately sensitive” to country risk.
The agency added that it would consider a one-notch downgrade for both America Movil and Coca-Cola Femsa if it were to downgrade the Mexican government.
S&P also took action on nearly 80 Mexican financial institutions, again citing the outlook change for the government, including at least several banks that saw their outlook lowered from “stable” to “negative.”
They included Citibanamex, the local unit of Citigroup Inc, and Banco Inbursa, which is controlled by the family of billionaire Carlos Slim.
Mexican President Andres Manuel Lopez Obrador has in the past dismissed ratings agencies’ assessments, and he has repeatedly pledged to revive Pemex, which had financial debt of nearly
US$ 106 billion at the end of 2018. The president has promised to boost Pemex’s oil output, which dropped to just 1.62 million barrels per day in January, the lowest since public records began in 1990.