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By Stefanie Eschenbacher
MEXICO CITY, May 16 (Reuters) - The financial package unveiled by the Mexican government earlier this week for Pemex is a step in the right direction, but still “very far” from meeting the state oil company’s needs, Fitch Ratings said on Thursday.
Mexican President Andres Manuel Lopez Obrador announced measures designed to help Pemex with its debt load by renewing credit lines with three banks, as well as plans to gradually reduce the company’s tax burden.
“The recently announced measures by the government are a step in the right direction,” Lucas Aristizabal, a senior director at the rating agency’s Latin American corporates group, said in an interview.
While the measures would allow Pemex to retain more of its internal cash generation to invest in its business, they are “still very far from the company’s needs,” Aristizabal said.
Fitch, one of the three main rating agencies that investors rely on for guidance when making investments, downgraded Pemex to BBB-minus with a negative outlook in January. Lopez Obrador said then that Pemex was in its best shape in 30 years.
The negative outlook implies a greater than 50% possibility of a downgrade over the next 12 to 18 months, Aristizabal said.
Lopez Obrador last week said Pemex and the Energy Ministry would be responsible for building a planned $8 billion refinery in the port of Dos Bocas in his home state of Tabasco because private companies could not meet his budget or deadline.
Aristizabal said this did not change the Fitch negative outlook.
Investors and ratings agencies have repeatedly raised concerns that the construction would divert funds from Pemex’s more profitable exploration and production business, and that the recently announced measures are not enough.
Aristizabal said Pemex must generate neutral or positive free cash flow after tax to stabilize its underlying credit profile.
Charles Seville, a senior director and co-head of Americas sovereigns, told Reuters that the potential need to support Pemex was also weighting on Mexico’s sovereign rating.
Fitch rates Mexico BBB-plus with a negative outlook. (Reporting by Stefanie Eschenbacher; editing by Dave Graham and Leslie Adler)