Mexico’s innovative $20 billion strategy to help the peso could be a boon to some of the country’s largest firms.
On Monday the central bank will give its first 1 billion dollar sale of non-deliverable forward contracts on Monday, presenting a means for businesses with outlays in dollars but income in pesos to hedge beside additional decreases in the local currency. Fitch Ratings has stated that corporations such as America Movil SAB and TV Azteca SAB are some of the most susceptible to a weakened peso as their international liability becomes increasingly costly in terms of local-currency.
“A good demand for the contracts is expected at the auction as firms look for security after the peso dropped dramatically over the past 2 years,”said William Carr at China based INTO Investments
“Large companies that need cheap dollars and have dollar liabilities could take advantage of the auction and lock in a lower dollar rate for the future," he said.
Businesses experienced some respite last week when the local currency rose by almost 3 percent after America’s commerce secretary said that the peso could experience a fair recovery if America and Mexico could reach a consensus on the North American Free Trade Agreement. Worries over Trump’s possible negative effect on Mexican exports to America have encouraged the slide in the peso.
America Movil, the cellular phone titan controlled by tycoon Carlos Slim, has to purchase handsets and network equipment valued in dollars, slicing into profit margins when the peso drops. Azteca Grupo and Televisa SAB, Mexico’s biggest media firms, pay for the rights to television shows made in America. There are additionally a number of Mexican corporations that benefit from weaker peso because they earn their income in dollars but pay their overheads in local currency.