S&P sees Mexican infra sector advancing, regardless of Nafta

Mexico's infrastructure sector faces higher rates and an economic slowdown, but is strong enough to weather the challenging market conditions, says ratings agency Standard & Poor's, which warns that further deterioration in US-Mexico attempts to renegotiate Nafta could compound the problem.

In a research note to investors, S&P said the threat of major changes to Nafta has led them to lower its outlook for 2017 GDP growth in Mexico to 1.8%; however, infrastructure projects will likely still find funding.

"We believe that most projects and businesses we rate with infrastructure sector operations in Mexico can overcome a period of slower-than-expected economic growth due to their high credit quality," read the S&P research.

The agency acknowledged that Nafta renegotiation has the potential to affect the transportation and energy sectors in Mexico in the coming years, as capital flows to projects and infrastructure players slow in line with the projected decline in GDP.

"Weakening in the relationship between Mexico and the United States could result in changes in long-term Mexican energy strategy with respect to natural gas and refined petroleum products," said the report.

However, the industry will have the momentum to move forward thanks in part to the strong credit position of many infrastructure firms and the essential need for Mexico to fund the sector, as well as the new regulatory framework for energy.

"Mexico must continue to invest in its infrastructure to improve competition and bolster economic growth, regardless of any changes to US policies or trade agreements," said S&P.

The report also cited the energy reform in 2013 as helping to ease bottlenecks in public-private partnerships with energy projects, noting Mexico estimates it would need an additional 57.1 MW of installed capacity as well as 27,071km in new transmission lines between 2016 and 2030.