Mexico /
Fitch Ratings reported that it is evaluating three different scenarios for the qualification of Mexican Petroleum (Pemex) after the Mexican government expressed its intentions to reclassify the company as a public company.
Tighter financial supervision
Fitch Ratings pointed out that heto reclassification could lead to stricter supervision by the Ministry of Finance over its operations and financial strategies.
“This increased oversight could affect Pemex’s debt issuance activity, but it could also make it easier for the company to obtain government financing,” he said.
Scenarios proposed for Pemex
Fitch Ratings reported that each scenario has different implications for the rating of Pemexthe first being the most likely due to its ease of implementation and its minimal impact on the country’s fiscal metrics.
This, which considers only the 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 of 25 to 32.5 based on Fitch’s “government-related entity criteria.”
This change, in turn, would cause a change in the tiering approach, from the current bottom-up plus five approach to a top-down minus two approach.
Consequently, the issuer default rating (IDR) would rise to ‘BB’ from ‘B+’.
Potential improvement in debt rating
The second scenario considers the reclassification and guarantee of Pemex’s debt for more than 75 percent of its financial debt total.
According to Fitch’s GRE criteria, this would result in the corporate rating being equal to that of the sovereign, leading to a four level upgrade to ‘BBB-‘ from ‘B+’.
The third scenario foresees a partial guarantee of Pemex debt.
While this would benefit the rating less than scenario two, it would also trigger a review of the subfactor “Supporting precedents” in addition to the subfactor “Decision making and supervision”.
Fitch said this double revision could increase the rating from 25 to 35, resulting in a change in the rating approach from the current bottom-up plus five approach to a top-down minus one approach. Accordingly, the IDR will be upgraded from ‘B+’ to ‘BB+’.
VHIT
