Fitch upgrades PEMEX to ’BB’ from ’B+’ after P-Cap transaction

Investing.com -- Fitch Ratings has upgraded Petroleos Mexicanos (PEMEX) to ’BB’ from ’B+’ and removed the Rating Watch Positive, assigning a Stable outlook.

The upgrade follows Mexico’s successful completion of a $12 billion P-Cap transaction, which strengthened Fitch’s assessment of government support for the state oil company. The rating agency also upgraded PEMEX’s senior unsecured notes to ’BB’ from ’B+’.

Fitch revised its "Precedents of Support" assessment to ’strong’ from ’not strong enough’, increasing the Overall Linkage Score between PEMEX and Mexico’s ratings to 30 from 25 points. This triggered a change in Fitch’s notching approach, resulting in the two-notch upgrade.

The P-Cap transaction has addressed approximately $5 billion of 2025 bank debt and $4.5 billion of 2026 bank debt, improving PEMEX’s financial flexibility and liquidity. This prompted Fitch to upgrade the company’s Standalone Credit Profile to ’ccc’ from ’ccc-’.

Despite these improvements, PEMEX’s financial profile remains weak. As of June 30, 2025, the company had $98.8 billion in debt, with quarterly interest expenses of $2 billion representing over half of its quarterly EBITDA. Expected leverage through the rating horizon exceeds 15 times.

Fitch believes multi-year underinvestment in both upstream and downstream assets will continue eroding operational and financial performance. The agency noted that multiple incidents at critical assets signal a lack of maintenance capital expenditure.

The rating agency identified several ESG concerns, including greenhouse gas emissions, hazardous materials management due to pipeline leaks, and employee wellbeing issues stemming from incidents that have caused injuries and fatalities.

Compared to regional peers, PEMEX’s link to the sovereign is weaker than Petrobras, Ecopetrol, and ENAP, though stronger than Petroperu. PEMEX’s Standalone Credit Profile is 10 notches below Petrobras and nine notches below Ecopetrol, primarily due to its weaker capital structure and increasing debt.

Fitch’s key assumptions include West Texas Intermediate crude prices averaging $65 per barrel in 2025 and $60 in 2026, flat oil production at 1.75 million barrels of oil equivalent per day, and annual capital expenditure averaging $12 billion.

A downgrade could result from a sovereign rating downgrade, weakened government support, or deterioration of PEMEX’s Standalone Credit Profile. Conversely, further government support, a sovereign rating upgrade, or an irrevocable government guarantee covering more than 75% of PEMEX’s debt could lead to a positive rating action.

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