Moody's: Mexican corporates face increasing risks

PRESS RELEASE

By Moody's

Mexico, January 12, 2017 -- Lower economic growth, a weaker currency, accelerating inflation, rising interest rates and an uncertain trade relationship with the US are just some of the challenges that lie ahead for Mexican corporates in 2017, says Moody's Investors Service in a report.

To a large extent, the magnitude of risks for Mexican companies depends on whether, or by how much, the new US administration successfully pursues trade policies on which President-elect Donald Trump campaigned, such as renegotiating NAFTA and imposing import tariffs.

"Any changes to NAFTA would likely hurt Mexican exporters and remittances from immigrants to Mexico may also decline under the new US administration," said Nymia Almeida, a Vice President and Senior Credit Officer at Moody's.

The Mexican peso's slump against the dollar has raised import prices of both raw materials and equipment, increasing companies' operating and capital spending costs. Oil and gas and some consumer companies are among those that will feel the impact of the volatile exchange rate. However, consumer-oriented companies that draw a large portion of their revenue from outside Mexico, including Grupo Bimbo, S.A.B. de C.V. (Baa2 stable) and Sigma Alimentos S.A. de C.V (Baa3 stable), would be better positioned to withstand reduced consumption at home and foreign exchange volatility.

The prospect of higher interest rates, leading to higher mortgage costs and weaker demand for housing, represents a risk to Mexican homebuilders such as Consorcio ARA, S.A.B. de C.V. (Ba2 stable), Corpovael, S.A.B. de C.V. (B1 stable) and Servicios Corporativos Javer, S.A.B. de CV (B2 stable). Weaker economic growth and higher unemployment could also hurt the housing sector.

Lodging companies such as Playa Resorts Holding B.V. (B3 stable), which operates holiday resorts based on the coast of Mexico, should benefit as the weak peso attracts more tourists to Mexico. However, others such as Grupo Posadas, S.A.B. de C.V. (B2 positive), that run business hotels, could find themselves exposed to a weaker economy.