February 3, 2017 / 5:59 PM / a year ago

Fitch Latam Spotlight: Taxes Drive Pemex's Borrowing Needs

(The following statement was released by the rating agency) CHICAGO, February 03 (Fitch) The Mexican government's continued taxation of Pemex will force indefinite borrowing and lead to financial difficulties, according to the latest report in Fitch Ratings' Spotlight series. One report in the series will be released each day through Feb. 6, 2017, following the schedule at the end of this release. "Although Pemex is striving to lower its production costs and increase its operation and investment efficiencies, these efforts might not be sufficient without a change in the government take." said Lucas Aristizabal, Senior Director. "The continued high taxes will significantly increase the need for a large government rescue in the medium term. Pemex's taxes make it improbable that the company would have positive free cash flow in the future." Pemex debt likely surpassed USD100 billion by year end 2016. Without more adjustments to the tax program, debt could surpass USD125 billion in two to three years, which Fitch considers unsustainable. Leverage may improve in line with oil price recovery expectations, but the reserve life of 8.1 years may not materially recover from the decline reported in 2015 without an increase in investment. Pemex's capital investments have been below implied replacement cost and not enough to stem a production decrease. The announced investment cuts will likely restart the production decline and proved reserves and reserve life could also decline. Fitch's Spotlight Series on Latin American Issuers will be released one report per day as follows: Jan 9th - American Movil S.A.B. de C.V. Jan 10th - GOL Linhas Aereas Inteligentes S.A. Jan 11th - Avianca Holdings S.A. Jan 12th - CEMEX, S.A.B. de C.V. Jan 13th - Companhia Siderurgica Nacional Jan 17th - Marfrig Global Foods S.A. and Minerva S.A. Jan 18th - Grupo IDESA, S.A. de C.V. Jan 19th - Odebrecht Engenharia e Construcao S.A. Jan 20th - Braskem S.A. Jan 23rd - LATAM Airlines Group S.A. Jan 24th - Mexichem, S.A.B. de C.V. Jan 25th - JBS S.A. Jan 26th - Vale S.A. Jan 27th - Empresa Nacional de Telecomunicaciones S.A. Jan 30th - Digicel Group Limited Jan 31st - Petroleos de Venezuela S.A Feb 1st - Ecopetrol S.A. Feb 2nd - Petroleo Brasileiro S.A. Feb 3rd - Petroleos Mexicanos Feb 6th - Offshore Drilling Holding, S.A. The Spotlight series focuses on fundamental credit concerns, delving into the relative exposure to the main risk factors, as well as implications, for each rating. The full report titled 'What Investors Want to Know: Pemex' is available at www.fitchratings.com. Contact: Lucas Aristizabal Senior Director +1-312-368-3260 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Alberto De Los Santos Associate Director +52 81 8399 9100 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. 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