Mexico's CFE credit rating stable

Credit ratings of Mexico's state-owned integrated electric utility held firm Thursday, despite the historic outcome of the country's presidential elections. Analysts say proposals to restructure Comision Federal de Electricidad SA (CFE) appear to be losing steam in Congress, at the same time President-elect Vicente Fox seems to be backing away from the idea.


Ann de Rouffignac
OGJ Online


Credit ratings of Mexico's state-owned integrated electric utility held firm Thursday, despite the historic outcome of the country's presidential elections. Analysts say proposals to restructure Comision Federal de Electricidad SA (CFE) appear to be losing steam in Congress, at the same time President-elect Vicente Fox seems to be backing away from the idea.

CFE ratings in local and foreign currency remain stable and positive, respectively, even though the Institutional Revolutionary Party (PRI), the dominant political party since the 1920s, lost the election for the first time, says Cheryl E. Richer, analyst with Standard & Poor�s Ratings Services.

�The election had no immediate impact on my analysis of CFE,� she says. �It�s a stable situation. There is still no consensus in [the Mexican] Congress for restructuring of CFE.�

Even before the elections, there was little sympathy in political circles for privatization. She says the election has not changed that sentiment.

If the country had gone forward with privatization of CFE, the credit ratings would have been affected, she says. But the privatization proposed in February 1999 by outgoing President Ernesto Zedillo has become increasingly unpopular, say industry observers. Moreover, President-elect Vicente Fox of the Partido Acion Nacional (PAN) party is also said to be downplaying the idea, sources say.

Privatization will require a change to the Mexican constitution which requires two-thirds approval from both houses of Congress. There is simply no appetite right now for such a radical change in Mexico's electricity system, Richer says.

The rate structure would have to be overhauled to reduce heavy subsidies for residential consumers before investors would become interested in buying the company. But politicians don't have much stomach for suddenly raising residential rates by some 40%, sources say.

Rate restructuring will take years to implement, and S&P doesn�t expect major changes in CFE�s ownership any time soon.

CFE�s rating reflects its economic importance as Mexico�s primary vertically integrated electric utility and strong expected growth in electricity demand, S&P says. It says CFE's ratings are enhanced by its legal status as a decentralized government agency and its close ties to the Mexican government.

CFE�s borrowing and capital plans require governmental approval even though the government is not legally liable for its obligations.

On the negative side, S&P said CFE's increasing reliance on build, lease, and transfer projects viewed as off-balance sheet debt financing will erode its debt-service ratios over the next 5 years. Electricity rates rise with inflation, but increases in fuel and purchased power expense are only passed on to large customers. Morever, CFE has a sizable unfounded pension liability.

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