Mexico PRI Oil Amendment Helps Credit Outlook, Moody’s Says

Pledges made by Mexican ruling party leaders that the government will seek constitutional changes to break the state’s monopoly on oil are “credit positive” for the nation, Moody’s Investors Service said.

The recent announcements mark an “important” shift for the ruling Institutional Revolutionary Party, or PRI, which hadn’t publicly promised amendments before, Mauro Leos, a New York-based senior credit officer at Moody’s, said in a phone interview. The energy bill is “more critical” than an upcoming tax overhaul in deciding on Mexico’s Baa1 rating, said Leos, who added that a Moody’s committee will discuss the nation’s stable credit outlook before congress votes on the bill.

President Enrique Pena Nieto said yesterday he’ll send his bill to congress next week, which seeks to amend several articles of the charter to allow private firms to drill for crude in Mexico by offering production-sharing contracts, PRI president Cesar Camacho said in an Aug. 6 interview. State-owned Petroleos Mexicanos, or Pemex, has monopolized oil production, exploration, refining and distribution in Mexico since 1938.

“It’s a message for the opposition and a message for the country that this is what the government is trying to do with the energy sector in Mexico,” Leos said yesterday. “What is credit positive is that the language they are using and the message they’re providing is fully consistent” with what the government has said in private, he said.

Peso

The peso strengthened 0.2 percent to 12.6865 per dollar at 8:08 a.m. in Mexico City. The yield on fixed-rate government peso bonds due in 2024 fell 5 basis points to 5.77 percent.

Moody’s rates Mexico Baa1, the third-lowest investment grade, since lifting the ranking in 2005. Fitch Ratings raised Mexico’s rating one level to BBB+ in May, in line with Moody’s ranking. Standard & Poor’s changed the outlook on its BBB rating for Mexico to positive from stable in March. S&P rates the country one level lower than Moody’s and Fitch.

The bill to loosen Pemex’s grip on crude output and attract investment would be the economy’s biggest overhaul since the North American Free Trade Agreement, according to Barclays Plc.

Pena Nieto, a 47-year-old former governor who took office in December, will propose production-sharing contracts for oil exploration and output, while drawing the line at offering private companies equity stakes in concessions, Camacho said in his interview. He declined to say which constitutional articles would be modified.

Javier Trevino, a PRI lawmaker and secretary on the lower house’s energy committee, said in an Aug. 1 interview that the bill will probably change at least articles 27 and 28 of the constitution.

Pena Nieto had originally pledged to present the bill this week. He delayed the reform in order to reach the “broadest consensus possible,” Francisco Arroyo, a PRI lawmaker and speaker of the lower house, said in a Radio Formula interview yesterday.

To contact the reporter on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net

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