Not only could state-owned Pemex lose its investment grade credit rating, but so could Mexico, JP Morgan said today, which could further reduce investments from outside the country.
"The materialization of a fallen angel episode is likely to occur in late 2021 or early 2022 if the current administration sticks to its current agenda," the bank said in a report.
The analysis is based on the idea that the administration of Andres Manuel Lopez Obrador will not change the economic pace or economic agenda.
"Structurally low growth, crowding out of private investment, energy sector drags, underwhelming response to the pandemic, and the persistent delay of a thorough fiscal reform suggest an increasing risk of more credit rating downgrades," the report says.
The impact on Mexico would be compounded by the country's inclusion in major investment grade global bond indexes. Funds based on such indexes would be forced to sell Mexico's bonds as soon as the country loses its investment grade.
The loss of investment grade ratings for Mexico could trouble Pemex even more, as much of the remaining confidence of investors that still trade Pemex bonds is based on government support.
S&P Global Ratings on 26 March downgraded the sovereign ratings for both Pemex and Mexico to BBB from BBB+ with a negative outlook, citing the coronavirus and lower oil prices. BBB- is S&P's lowest investment grade rating.
