Must-know: Mexico proposes an influential energy reform

Part 2
Must-know: Mexico proposes an influential energy reform (Part 2 of 4)

Is there a country rating upgrade on the horizon for Mexico?

Energy reform and sovereign rating upgrade

There has been much speculation about the energy reform triggering a potential upgrade of Mexico’s sovereign rating. Mexico is currently BBB+ by Fitch and Moody’s, while S&P currently rates Mexico BBB.

Mexico vs Emerging Markets 2013-09-05Enlarge Graph

Though the same was said when the other reforms passed (mainly the telecom reform), the energy reform will bring long-awaited and needed changes to Mexico’s energy sector, so rating agencies have focused on it.

Fitch already upgraded Mexico in early May. S&P stated that an upgrade would be likely if a strong energy reform passes. Moody’s noted that its outlook on Mexico’s rating could improve to positive from stable before the reform vote, and an upgrade would be likely after the reform is approved.

While this is quite encouraging, the weakest link in this case is S&P, whose rating on Mexico is one notch lower than that of S&P and Moody’s. Because of this, it’s unlikely that the latter two will change anything until S&P first upgrades the rating.

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