Reaction Mixed to Mexican Energy Reform
August 14, 2013
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.
[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 at BlackRock.
“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
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.
“The 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 positive surprises.”LF