Fitch Ratings reported that it is evaluating three scenarios for the rating of Petróleos Mexicanos (Pemex), after the federal government expressed its intentions to reclassify the oil company as a public company.
In an analysis document, the rating agency noted that each scenario has different implications for the firm’s rating, the first being the most likely due to its ease of implementation and its minimal impact on the country’s fiscal metrics.
The first scenario, which considers only reclassification, could result in an increase in the score of the “Decision Making and Supervision” subfactor, one of the four components that comprise the General Support Score (OSS). This revision could increase the OSS from 25 to 32.5, based on Fitch’s “government-related entity criteria.”
With this change, the issuer default rating (IDR) would be raised to ‘BB’ from ‘B+’.
The second scenario considers the reclassification and guarantee of Pemex’s debt for more than 75% of its total financial debt. This would result in the corporate rating being matched with that of the sovereign, leading to a four-notch upgrade to ‘BBB-‘ from ‘B+’.
The third scenario provides for a partial guarantee of Pemex’s debt. While this would benefit the rating less than scenario two, it would also trigger a review of the “Supporting precedents” subfactor in addition to the “Decision making and supervision” subfactor.
This double review could increase the OSS from 25 to 35, causing a change in the focus of the classification. Consequently, the IDR would be updated from “B+” to “BB+”.
Fitch Ratings specified that the reclassification of Pemex proposed by the federal government to the Legislature could lead to stricter supervision by the Treasury over its operations and financial strategies, and could affect the oil company’s debt issuance activity, but it could also facilitate The company obtains financing from the government.
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