It was just a matter of time before Pemex, Mexico’s chronically indebted state-owned oil giant, began dragging down the national economy it had almost single handedly sustained for over 75 years.
The company has been bleeding losses for 13 straight quarters. As of December 31, it had $114.3 billion in assets and $180.6 billion in liabilities, a good chunk of it denominated in dollars, leaving a gaping hole of $66.3 billion (negative equity), after having been strip-mined over the decades by its owner, the government. And given these losses and the equity hole, new credit is becoming harder to come by.
Now it seems that Mexico’s worst nightmare is beginning to come true, thanks in no small part to Moody’s Investors Service. The credit rating agency last week downgraded Pemex’s credit rating from Baa1 to Baa3. In November Pemex had a perfectly respectable credit rating of Aa3; now, just six months later, it’s perilously perched just one notch above junk.
“Moody’s believes that Pemex’s credit metrics will worsen as oil prices remain low, production continues to drop, taxes remain high, and the company must adjust down capital spending to meet its budgetary targets,” the report said.
That was for Pemex. Now Moody’s also changed the outlook for Mexico’s sovereign rating from stable to negative.
This, coupled with the mounting risk of a credit downgrade, heaps further pressure on a government already struggling to shore up its balance sheet. Hardly helping matters is the fact that oil prices, a key source of government revenues, continue to languish at low levels, while the prospect of a massive bailout of Pemex looms ever larger. As if that were not enough, Mexico’s manufacturing industry is beginning to feel a very sharp pinch from weakening U.S. consumer demand.
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