Mexico credit rating at risk if Pemex, CFE debt keeps rising: S&P

MEXICO CITY (Reuters) - Ratings agency S&P said on Thursday it would be difficult for Mexico to maintain its sovereign investment grade rating if debts keep rising at state-oil company Petroleos Mexicanos and the state power company, the Comision Federal de Electricidad.

Analysts have long worried the financial woes of the money-losing driller, known as Pemex [PEMX.UL], could drag down the sovereign rating of Latin America’s second largest economy.

Pemex had financial debts of $105 billion as of March.

S&P lowered Mexico’s long-term foreign currency credit rating on Mexico to BBB from BBB+ in March.

Sebastian Briozzo, S&P Global’s head of the sovereign and international public finance ratings team in Latin America, said Mexico’s debt stood at 47% of gross domestic product (GDP) but adding in the debts of Pemex and CFE it was close to 60%.

“If this (debt) increases in a very significant way, it will be very difficult for Mexico to maintain not only its current rating, but also BBB- ratings,” said Briozzo.

He added that Mexico’s credit rating had some room to deteriorate before reaching so-called speculative grade, or “junk.”

S&P forecasts that Mexico’s economy will contract by 8.5% in 2020 due to the economic fallout of the coronavirus pandemic, reflecting the “inability” of President Andres Manuel Lopez Obrador’s administration to boost business confidence and investment.

Investor nerves have been rattled by some of the unorthodox economic policies pursued by the government and its allies in Congress, such as the cancellation of billion-dollar private investments and efforts to weaken autonomous government watchdogs.

Briozzo, without naming Lopez Obrador, said he was concerned about decision-making being too concentrated at the top in the hands of one person.

Will government decision-making be “drastic, unilateral, without consensus or similar to the pension system reform which seemed more negotiated?” Briozzo said.

Reporting by Anthony Esposito and Abraham Gonzalez; Writing by Drazen Jorgic; Editing by Jonathan Oatis and Richard Chang