Moody’s Flags Mexico Corporate Risk

Mexican corporates face liquidity risk because of reliance on informal banking relationships and the assumption that capital markets will remain open, Moody’s warns. “It is unbelievable that some Mexican companies continue to be very aggressive, using short-term debt to fund long-term positions and refinancing at the last minute,” says Nymia Almeida, senior analyst at Moody’s in Mexico. “Corporates need to plan what will be their alternative means of financing if they do not have market access. They can’t just assume banks will be there,” she tells LatinFinance. In a recent report, Moody’s acknowledges that most Mexican corporates have extended maturities, but it sees irregular access to local capital markets and the unreliability of bank financing as potential risk factors. Cablemas and Axtel are among the issuers most vulnerable to liquidity risk. Cablemas faces being over reliant on external financing, while Axtel’s liquidity has worsened as a result of revenue contraction. Televisa’s commitment to Cablemas mitigates the downside. “There has been improvement but this is still not enough,” says Almeida. “There are hardly any committed credit facilities, there are still margin call risks and there are still not clear policies on the management of risk,” she adds. According to Almeida, covenant packages are weak and could be tested in a worst case scenario. They sometimes miss upstream guarantees for opco subsidiaries on debt at holding companies, and in some cases omit basic cross default or negative pledge clauses. Foreign exchange risk is also high because of currency mismatches. For 67% of the 21 corporate issuers cited by Moody’s, dollar exposure is not fully covered by dollar cash flow. However, leverage is relatively low. The median adjusted debt to Ebitda for the 21 corporate issuers domiciled in Mexico tracked by Moody’s was 2.5x for the 12 months ended March 31. America Movil and Bimbo are the only ones with committed facilities, which Moody’s considers es