Earlier this week, Mexican President Enrique Peña Nieto sent a bill to the Mexican Congress which, if it becomes law, would bring about major reforms in the Mexican telecommunications industry, including the introduction of greater governmental powers to combat monopolies and rules which could ease the path for more foreign investments. This news should be encouraging for investors for a number of key reasons, according to
, Fixed Income Portfolio Manager at Market Vectors ETFs.
“These proposed reforms are the latest in a recent series of encouraging signs that we have seen coming out of Mexico. The new administration has an aggressive reform agenda, and the proposed telecommunications reform is a positive sign of its willingness to take on some of the most powerful business interests in the country,” said Rodilosso. “As a long-time investor in high-yield emerging market bonds, I have seen how the market has treated the ‘also-rans’ in Mexico’s telephony and broadcasting industries; companies whose ability to compete in that country has at times seemed to be at the whim of the dominant players or the courts. Even last year, a smaller fixed line competitor lost important rulings on fees that severely hurt its profitability. In my view, this type of reform could level the playing field somewhat and open up some of these companies to foreign ownership.”
“Of course, if this bill passes and becomes law, the question remains of its effectiveness,” continued Rodilosso. “The courts have historically been friendly towards Mexico’s dominant companies and politically ingrained elites. Even the recent pro-creditor ruling on the Mexican bankruptcy case involving Vitro SAB happened on U.S. soil. If Vitro did not have U.S. subsidiaries, then creditors would have been left with very little leverage to combat the company’s reorganization plan was approved in local courts.”
“In my opinion, there are a variety of risks associated with investing in the small market, mostly fixed line, operators in Mexico. But the movement towards reform at this early stage in President Peña Nieto’s administration should be seen as an encouraging step in opening up the competitive landscape to potentially more foreign ownership,” he added.