Fitch Ratings believes Mexican corporates' robust liquidity metrics will enable them to cope with short-term risks amid talks to revamp the North American Free Trade Agreement, according to a May 16 report.
Fitch adds that geographic diversification for Mexican corporates has improved over the past decade, and this should prevent widespread deterioration in credit quality.
Also, Mexican corporates have seen robust borrowing, and the domestic bank lending market has been competitive, while international markets have been open for cross-border debt issuers. Total debt issued by non-financial corporates in international markets reached almost $18 billion in 2017, while total transactions reached $6.3 billion for the first quarter of 2018.
However, if the trade deal is scrapped, the same corporates could see negative rating actions as market and credit conditions start to decline. Fitch expects a slowdown in growth, weaker investor confidence, lower foreign direct investment and currency pressures would arise in case of a loss of the trade deal.
The auto, diversified manufacturing, real estate and retail sectors would likely be the most affected in case of a loss of the trade deal, though individual issuers will also be affected to a varying degree depending on what portion of their production facilities are abroad, the rating agency said.