MEXICO CITY: Mexican state oil giant Petroleos Mexicanos (Pemex) could sink deeper into junk territory if Mexico's under-pressure sovereign credit rating is downgraded, ratings agency Moody's Investors Service said on Wednesday.

Moody's stripped heavily indebted, loss-making Pemex of its investment grade rating in April and downgraded it to junk status by cutting its rating to "Ba2" from "Baa3".

That downgrade meant Pemex, which has more than $105 billion in financial debt, became the world's largest "fallen angel", the term for a borrower that descends from investment grade to junk.

The credit metrics for one of Latin America's largest oil companies will remain weak for the foreseeable future, the ratings agency said in a semi-annual update, citing low oil prices, Pemex's debt burden and under-investment.

Moody's said a downgrade of Mexico's sovereign Baa1 rating would also "likely result in a downgrade of Pemex's rating" further into speculative grade - or 'junk' - territory.

In case Mexico's sovereign debt is downgraded, Pemex's "baseline credit assessment would have to substantially improve" for it to maintain its Ba2 rating, Moody's said.

Mexican President Andres Manuel Lopez Obrador, a leftist oil nationalist, has staked his reputation on reviving Pemex, which has been a powerful symbol of Mexican self-reliance since its creation in 1938.

But a combination of declining output, crushing tax obligations and a hefty payroll burden have gradually weakened the company, which is a major source of federal budget revenues.

Pemex is highly dependent on the government and Moody's also warned "a change in our assumptions about government support and its timeliness could lead to a downgrade".

Moody's said Pemex remains vulnerable to low commodity prices and the company is unlikely to be upgraded given the negative outlook for Mexico's sovereign rating and "expectations for continued negative free cash flow at Pemex".