Petroleos Mexicanos had its credit rating cut following the worst quarterly loss in the company’s history and bondholders shrugged.
The day after Moody’s Investors Service downgraded the company’s rating by one level, citing lower crude prices, high taxes and falling production, the yield spread that investors demand to buy the most-traded bonds due 2020 instead of U.S. Treasuries increased by just 0.01 percentage point to 2.32 percent. State-owned Pemex is the second-largest borrower in Bloomberg’s USD Investment-Grade Emerging-Markets Corporate debt index.
“The markets don’t look at Pemex as an independent entity which needs to sustain a specific valuation because it has Daddy to back it up,” said Luis Maizel, who helps manage $5.5 billion as co-founder of LM Capital Group and owns Pemex bonds.
The cut, which followed Pemex’s worst-ever quarterly results, left Mexico’s state-owned oil producer at Baa1, the third-lowest investment grade and one level below Mexico’s sovereign rating of A3. The downgrade takes into account the Mexican government’s support for the oil company, Moody’s said.
Moody’s said it may lower the rating again. Pemex is set to refine the lowest volume of crude oil in at least 25 years this year, according to data compiled by Bloomberg.
Speaking at an event in Mexico City, Moody’s Pemex analyst Nymia Almeida said she expects Pemex’s financial standing to remain weak through 2016. The company is likely to continue to consider more asset sales to reduce its debt, she said.
“We’re not going to wake up in 2017 with a new Pemex,” Almeida said on Wednesday.