Fitch projects ‘improvement’ in Pemex rating; these are the scenarios

According to the rating agency, the reclassification may result in 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,” Fitch said.

Only the reclassification, this first scenario, in which the score of the subfactor “Decision making and supervision” can increase, this is one of the components that comprise the overall support score (OSS).

“This revision could increase the OSS from 25 to 32.5 under Fitch’s ‘Government-Related Entity Criteria.’ This change, in turn, would trigger a change in the tiering approach from the current bottom-up approach.” plus five to up down minus two. Consequently, the Issuer Default Rating (IDR) would be upgraded to ‘BB’ from ‘B+'”, according to Fitch this is the most likely due to its ease of implementation and its minimal impact on the country’s fiscal metrics, but it remains at a non-investment level.

He second scenarioreclassification and debt guarantee for more than 75% of its total financial liabilities, which would result in the corporate rating being equal to that of the sovereign, and in turn lead to a four-notch upgrade to ‘BBB-‘ from ‘B+’; here it would once again enter investment grade.

The partial debt guarantee is the third scenario; While it 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, resulting in a change in the tiering approach from the current bottom-up plus five approach to top-down minus one, which would raise the rating to BB+ from B+.