Fitch lowers Mexico’s credit rating over falling oil production; gov’t borrowing costs to rise

Fitch lowers Mexico’s credit rating on oil decline

MEXICO CITY — Fitch Ratings downgraded Mexico’s credit rating Monday, saying dependence on a flagging oil sector has weakened the country’s ability to weather financial problems.

Mexico’s rating remained at investment grade, but the downgrade will bring a rise in the government’s borrowing costs.

Fitch said decreased oil production has already accentuated economic problems in Mexico and output could continue to decline. Fitch said it lowered Mexico’s foreign currency Issuer Default Rating to BBB from BBB+ and its local currency IDR to BBB+ from A-.

Oil income makes up more than a third of Mexico’s public sector revenues, but production has been falling as reserves dry up.

Mexico’s Treasury Department noted the new rating is still two levels above the minimum for investment grade.

It said in a statement that the government of President Felipe Calderon has made important advances to address the structural weaknesses pointed out by Fitch and implement reforms that can increase competitiveness and growth.

“In less than three months, three reforms have been put in place: a fiscal reform, several steps to accelerate investment in infrastructure and the liquidation of Luz y Fuerza del Centro,” the department said, referring to the costly and troubled former state power company for the region in and around the capital.

Calderon disbanded Luz y Fuerza in October, saying costs between 2003 and 2008 ballooned to 433 billion pesos ($32.5 billion) while sales totaled just 236 billion pesos ($17.7 billion).

Calderon, however, was unable to push a bill through Congress to increase consumption taxes by 2 percent to offset weakening government revenue. Lawmakers approved a 1 percent value-added tax this month.

Also Monday, government regulators imposed a fine of 49 million pesos ($3.75 million) against retailer Controladora Comercial Mexicana for not providing authorities with adequate information on the company’s derivatives transactions.

The head of the National Securities and Banking Commission told local media it was the highest such fine the agency has ever handed out.

The company’s dealings in derivatives — complex instruments that involve hedges and futures contracts — caused large losses for Comercial Mexicana and forced it to suspend payments to creditors in 2008.

The company said in a statement that it has paid 39.2 million pesos on the fine, because of the application of a 20-percent discount for prompt payment.

The company’s director of administration and finances was suspended for two years as part of the sanction.

Comercial Mexicana’s UBC stock rose 1.38 percent in trading Monday to close at 10.99 pesos a share after the sanction was announced.

In another development, broadcaster Grupo Televisa announced it sold $600 million in long-term bonds maturing in 2040 with an annual interest rate of 6.625 percent. The company said it planned to use the funds to pay off other debt and repurchase stock, among other things.