Fitch: Mexican corporate liquidity remains sound despite a challenging 2015

Liquidity remains strong for Mexican corporates but has slightly deteriorated in the last years, according to Fitch Ratings' special report 'Mexican Corporate Liquidity Remains Sound Despite a Challenging 2015'. The aggregate median of cash plus cash flow from operations/short-term debt ratio has declined to 3.2x as of June 2014 from 4.6x in 2010 due to increased debt maturities coming due. From year-end 2010 to June 2014, short-term debt has increased at a faster pace than cash and marketable securities. For the portfolio of Mexican corporates, the median liquidity ratio measured as cash/short-term debt has debilitated from 2.1x in 2010 to 1.4x in June 2014. This effect is also demonstrated by the increasing percentage of short-term debt/total debt; the percentage increased from 12.66% in 2010 to 13.41% in June 2014. The trend is consistent with increased debt refinancing due to short-term maturities. Fitch believes this ratio should improve as refinancing takes place.

Fitch expects positive rating actions to outpace negative ones by a narrow margin in 2015 for Mexican corporates; however, weak oil prices, budget cuts and MXN depreciation should temper the ratio of upgrades/downgrades. Fitch expects stable credit metrics as free cash flow remains close to neutral. Rating risk relates to merger and acquisition activity, refinancing risk for low rated entities and companies with currency mismatch between their balance sheet and cash flow.

The report provides analysis of Mexican corporates' evolving leverage and liquidity ratios and aggregate insight of the portfolio of publically rated Mexican Corporates by Fitch in the international and national scales. The report shows trends regarding credit metrics, cash flow generation and liquidity positions for the portfolio. It also discusses the drivers behind some of the most notorious rating changes during the past years.