OREANDA-NEWS. Headwinds including lower gross domestic product, Mexican Peso (MXN) devaluation during the year and slower government spending are not expected to significantly affect Mexican Corporates, according to Fitch Ratings. We expect a Stable Rating Outlook for the next 12 months.

Key concerns remain the effect in the economy of less spending by the government and potential interest rate increases in the medium term. Government spending should continue related to oil prices and the expectation of them for 2016 while higher interest rates should have an impact on free cash flow. Mexican corporates exports oriented are expected to continue benefiting from a weak MXN and thus supporting its credit quality. Retailers are expected to continue the positive trend in total and same store sales but growth is expected to slow down due to lower government spending. Manufacturing output should continue weak underpin by mining subsector as lower metal prices weight on revenues.

Liquidity remains solid with extended maturity profiles despite higher leverage levels for the average company over the past five years. First half of 2015 operating trends were favourable, although free cash flow was relatively unchanged. Leverage increased during the third quarter and throughout the year but remains at manageable levels when compared to other Latin American countries while liquidity also remains sound. Good performance by exporters along with a better environment for consumption versus the previous year balance against lower oil prices and sluggish economic growth.

Positive rating actions are expected to be balanced against negative rating actions. As of the end of Sept. 30, 2015, 87% of Mexican Corporate ratings with public international or national scale rating had a Stable Rating Outlook, 7% Negative and 6% Positive. This trend has migrated over the past 12 months towards a more balanced bias from a more positive bias between Positive and Negative Outlooks.

Positive Rating Outlooks are mostly due to improved operational performance while Negative Rating Outlooks are a function of a mix of merger and acquisition activity and bad operating results. Good financial results have driven most of the upgrades, with about one-half of those taking place in the food industry and others in the cement industry. Downgrades for this period have been the result of mergers and acquisitions activity and the fall of commodity prices.