Must-know: Mexico proposes an influential energy reform (Part 2 of 4)
Energy reform and sovereign rating upgrade
There has been much speculation about the energy reform triggering a potential upgrade of Mexicoâ€™s sovereign rating. Mexico is currently BBB+ by Fitch and Moodyâ€™s, while S&P currently rates Mexico BBB.
Though the same was saidÂ when the other reforms passed (mainly the telecom reform), the energy reform will bring long-awaited and needed changes to Mexicoâ€™s energy sector, so rating agencies have focused on it.
Fitch already upgraded Mexico in early May.Â S&P stated that an upgrade would be likely if a strong energy reform passes.Â Moodyâ€™s noted that its outlook on Mexicoâ€™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 Moodyâ€™s. Because of this, itâ€™s unlikely that the latter two will change anything until S&P first upgrades the rating.
Browse this series on Market Realist:
- Part 1 - Proposed energy reforms: Implications for investors in Mexico
- Part 3 - Short-term market implications of Mexicoâ€™s energy reforms
- Part 4 - Credit upgrade implications of Mexicoâ€™s energy reforms
- Security Upgrades & Downgrades