Reaction Mixed to Mexican Energy Reform
A landmark bill proposed this week to reform Mexico’s energy sector was met with cautious optimism by financial markets, amid questions over the extent of the plan.
Although there were few surprises in the
ruling PRI party’s plans to overhaul the
nation’s oil and electricity sectors, the markets
reflected disappointment that plans lacked the aggressiveness
of an earlier PAN proposal. There was also concern that the
proposal did not go as far as allowing foreign oil companies to
share in reserves, rather than just profits.
The stock market was down more than 1.0%
on the Monday following the announcement before recovering
slightly Tuesday. However, analysts see significant upside.
"We view this weakness as a buying
opportunity and view the PRI proposal as a pragmatic approach
that will still likely achieve objective of FDI inflows,
competitiveness gains, higher growth potential and positive
rating action," Jefferies said Wednesday in a note.
That constitutional reform is in the cards
reaffirms itself represents a "positive event," the shop says,
even if the markets would prefer production sharing versus
profit sharing. It reiterates a preference for Mexican 30-year
bonds, versus similarly-rated Colombian 30-year bonds.
"While [profit sharing
contracts] do not go as far as granting full concessions to
private operators, depending on how they are legislated, they
should provide enough opportunity to attract significant
private sector interest," said Will Landers, portfolio manager
"We continue to argue that we see a 70%
chance, or perhaps an even higher one, of this reform being
approved by year-end 2013," Bulltick said in a research note.
Approval should bring sovereign rating upgrades, increases in
potential growth, higher levels of competitiveness of Pemex,
lower electricity tariffs, and material appreciations in
Mexican asset prices, it added.
Commerzbank sees the plan pushing
Mexico’s long-term growth trend closer to 4.0%
territory from the current 3.0%, it said, and could eventually
lift the country into A rating territory.
government’s strategy is to reach a middle ground"
between the PAN proposal and popular skepticism towards
constitutional change, Commerzbank said. It calls the bill
"market friendly," while noting it leaves "little room for