Mexican state oil company Petroleos Mexicanos (Pemex) said on Tuesday that it has ended a contract with credit ratings agency Fitch Ratings, less than a week after it posted a 2020 fourth quarter result that underwhelmed investors.
Fitch was the first of the big three agencies to downgrade Pemex bonds to speculative grade, or junk. In March last year, it also identified Pemex as the most vulnerable among national oil companies in Latin America.
Debt issuers such as nations and companies usually pay ratings agencies including Fitch, Moody’s Investors Service and S&P Global Ratings to help investors judge risk.
Pemex, the world’s most indebted national oil company, has outstanding bonds worth tens of billions of dollars.
A source familiar with the decision said Pemex did not need to be rated by all three agencies, and that the decision of which one to drop was made after taking into account quality of service and the “technical seriousness of the ratings analysis.”
Pemex and Fitch did not immediately respond to requests for comment.
Luis Gonzali, co-director at Franklin Templeton, said that the market considers it best practice to have contracts with the three main credit rating agencies.
“It sends the wrong signal to global investors,” he said, of the contract cancellation.
Pemex said it will continue to receive the rating services required by regulators for the sale of securities.
The statement added that the end of the Fitch contract was aimed at helping Pemex face a “current complex economic context” by optimizing the rating services it uses.
The source said the company did not intend to terminate its contracts with Moody’s or S&P, or a smaller third company called HR Ratings.
Last week, Pemex reported a $6.23 billion net profit. But much of it was down to currency gains. Its operations made losses, financial debt rose and crude oil production fell.
Pemex said the termination of the contract takes effect on Thursday.