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Mexico Raised to BBB+ From BBB at S&P on Oil Sector Overhaul

Mexico’s rating was raised to BBB+ from BBB at Standard & Poor’s after the country’s legislature approved constitutional changes to allow private companies to drill for oil in the country for the first time in 75 years.

The move is a “watershed moment” that will attract private investment and spur growth within the next several years, according to a statement today from S&P analysts led by Lisa Schineller.

Mexico’s Congress approved a bill last week that will allow companies such as Exxon Mobil Corp. and Chevron Corp. to drill in the country, in the biggest economic overhaul since the North American Free Trade Agreement in 1994. President Enrique Pena Nieto also pushed through measures this year to encourage banks to lend more and broadened the government’s revenue base by raising income tax and adding levies on soda pop and high-calorie snacks.

“Passage of this landmark energy reform not only bolsters Mexico’s growth prospects but also its fiscal flexibility by eventually strengthening its oil revenue base,” S&P’s analysts wrote in the statement.

S&P forecasts gross domestic product growth of 3 percent next year and 3.5 percent in 2015, compared with 1.2 percent in 2013, according to the statement.

The upgrade brings S&P in line with Moody’s Investors Service and Fitch Ratings. Fitch raised Mexico one level to BBB+ in May. On both the S&P and Fitch scales, BBB+ is three levels above junk grade.

S&P’s move restores Mexico’s credit rating to its level from 2009, when the credit company downgraded the nation amid an economic contraction of 6.2 percent stemming from the financial crisis in the U.S. and a drop-off in exports.

The peso, which had weakened as much 1.1 percent against the dollar earlier today, pared losses and was down 0.7 percent at 4 p.m. in Mexico City.

To contact the reporter on this story: Jonathan Levin in Mexico City at jlevin20@bloomberg.net

To contact the editor responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net

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