MEXICO CITY, Nov. 13, 2012 /PRNewswire/ -- HR Ratings de Mexico, S.A. de C.V. ("HR Ratings") has assigned a long-term rating of HR A- (G) to the sovereign debt of Mexico, with a stable outlook. This includes all currency denominations, including the peso, UDIs and foreign currency. For short-term debt the assigned rating is HR2 (G).
The rating is based on Mexico's prudent fiscal policy, which has endured through at least three presidential administrations and various political parties, suggesting that a broad consensus for such policies exists. These policies have emphasized limited budget deficits, the result of which is that current debt levels are manageable. Additionally, Mexico's current account deficit has in recent years been small, increasing confidence in the credit quality of Mexican sovereign debt. Most significantly, economic performance and fiscal policy during the severe 2009 recession and its aftermath demonstrates Mexico's ability to maintain discipline under the most difficult of economic circumstances.
Commenting on this rating, Alberto Ramos, CEO of HR Ratings said: "We are pleased to be issuing a rating of Mexican sovereign debt as our first sovereign rating. Our ratings philosophy is to provide dynamic, forward-looking analysis. Seeking to provide investors with maximum transparency, we are meticulous in our analysis of both the positive and negative factors that affect our ratings."
Felix Boni, Chief Credit Officer of HR Ratings, said: "We use IMF metrics that reveal the relative strengths of a country's economic performance against other sovereign groups, classified according to various economic and regional characteristics, which enables us to be more precise in our analysis."
The HR A- (G) rating assigned indicates that Mexico provides acceptable security to service its debt obligations with a low credit risk. The "-" sign that accompanies the long-term debt rating implies a relative weakness within each rating scale, while the short-term HR2 (G) assigned rating means it offers an acceptable capacity for timely payment of short-term debt obligations and maintains a higher credit risk compared with higher sovereign credit rating.
HR Ratings' Mexican sovereign debt rating included the following additional analyses and conclusions:
- HR Ratings compared Mexico with other sovereigns on a variety of relevant metrics, an analysis that supports the assigned ratings, especially versus large economies which generally have higher credit ratings even with poorer credit quality fundamentals.
- An analysis forecasts an "on-Budget" financial deficit rising to 3.06% of GDP in 2019 with the debt reaching 41.7%. This change (from 2.5% and 31.7% for the last twelve months through June 2012 and as of 2019, respectively) is fully consistent with the rating.
- Cautious long-term view with some additional upside risk to our forecast assumptions. Although Mexico's inflation remains above targeted levels, significant progress has been made in stabilizing it, especially at the core level, thus substantially reducing the risk of an increase from current levels. Furthermore, the current rate at above 4% appears to be related to transitory factors.
Downward rating pressure could result from one of the following issues:
- A slowing in long-term growth prospects for the United States (U.S.), upon which Mexico is strongly dependent. This is despite some recent degree of diversification in Mexican trade patterns.
- Risk that past policies will change given that a new administration from a different party is taking office in December. One possible result of this could be the creation of expansive new entitlement programs in health and pensions. HR Ratings assumes that a prudent fiscal policy will continue. However, forecasts do assume that economic and political pressures will produce deficits that will gradually lead to rising debt to GDP ratios.
- Deficiencies in public security. Although crime has likely had an impact on economic growth in Mexico, the extent of this impact is difficult to determine, especially in the context of strong recent performance. HR Ratings does not assume any forthcoming change in this regard.
An overview of the methodology for HR Ratings, including this rating, is the HR Ratings de Mexico, S.A. de C.V. Ratings Scale. Please see the HR Ratings Scale at:
About HR Ratings
HR Ratings de Mexico, S.A. de C.V. is a leading credit rating agency, authorized by Mexico's National Banking and Securities Commission (CNBV) and is the first Latin-American rating agency and only the tenth company worldwide that currently has the registration by the U.S. Securities and Exchange Commission (SEC) as a Nationally Recognized Statistical Rating Organization ("NRSRO") for issuers of government securities.
HR Ratings provides credit ratings for a range of debt securities and institutions in Mexico including governmental entities, corporates, financial institutions and infrastructure with a value totaling approximately $30 billion dollars. Based in Mexico City, the Firm has the on-the-ground resources and expertise to provide unparalleled insights into the credit risks of market participants. For more information, please visit: www.hrratings.com
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HR Ratings de Mexico, S.A. de C.V. (HR Ratings) is a securities rating firm authorized by the Comision Nacional Bancaria y de Valores (Mexican Banking and Securities Commission), with over 100 years total experience analyzing and rating the credit quality of companies and government entities in Mexico, and also asset management, or performance in terms of the corporate purpose of any entity.
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The rating granted by HR Ratings de Mexico, S. A. de C.V. in this press release is supported by the analysis of stress and base scenarios. The Rating is supported in the following methodology:
Sovereign Debt Methodology, September 2012
For additional information regarding HR Ratings´ Methodology, please consult the web page: www.hrratings.com/es/metodologia.aspx
The following information is available on our website www.hrratings.com: (i) The company's procedure for following up on our ratings and the frequency of reviews; (ii) the criteria applied by this rating firm to withdraw or suspend a rating, and (iii) the structure and voting process of our Analysis Committee.
The ratings and/or opinions of HR Ratings de Mexico, S.A. de C.V. (HR Ratings) are opinions on credit quality and/or asset management, or refer to performance in terms of the corporate purpose for issuer companies and other entities, and are based solely on the characteristics of the entity, offering, and/or operation, independent of any business activity between HR Ratings and the entity or issuer.
The ratings and/or opinions given or issued are not recommendations to buy, sell, or hold any instrument, or to conduct any type of business or operation, and may be subject to adjustment at any time, according to the rating methodologies of HR Ratings and the terms of Article 7, section II and/or III of the "General provisions applicable to issuers of securities and other participants in the securities market".
HR Ratings bases its ratings and/or opinions on information gathered from sources considered to be accurate and reliable. HR Ratings, however, does not guarantee or vouch for the accuracy, precision, or completeness of any information and is not responsible for any error or omission or for results obtained from the use of this information. Most issuers of debt instruments rated by HR Ratings have paid a credit rating fee based on the quantity and type of offering. The goodwill of the security or the solvency of the issuer, and, accordingly, the opinion given on the capacity of an entity in terms of asset management and performance on its corporate purpose may change, which may improve or lower the rating, without this implying any liability for HR Ratings. HR Ratings gives its ratings and/or opinions ethically and in adherence of healthy market practices and in compliance with applicable regulations, which can be found on the company website at www.hrratings.com, where documents such as the Code of conduct, methodologies or criteria for rating, and current ratings are available.
The ratings and/or opinions HR Ratings issues include a credit quality analysis for an entity, issuer, and/or offering, therefore they do not necessarily reflect a statistical probability of default on payment, this being understood as the impossibility or lack of will of an entity or issuer to settle its contractual obligations of payment, in which case creditors and/or holders are forced to take measures to recover their investment, including restructuring the debt due to the debtor facing a situation of stress. However, to give our opinions on credit quality greater validity, our methodology considers stress scenarios as a complement to the analysis prepared on a base scenario.
SOURCE HR Ratings de Mexico, S.A. de C.V.