July 31 (Bloomberg) -- Empresas ICA SAB plans to start paying dividends within five years as Mexico’s largest construction company anticipates its return on equity will more than double as toll projects are expanded or completed, Chief Financial Officer Alonso Quintana said.

Investments to build toll highways that ICA will operate for 30 years under government concessions has held down return on equity, a measure of how efficiently management invests capital. Return on equity may rise to as much as 20 percent from about 7 percent this year, Quintana said.

“With the nature of our business, it has nowhere to go but up,” Quintana said in a July 29 interview in Mexico City. “Once these projects reach the mature phase, they will give us constant, good return on equity for many years.”

Government spending on roads, bridges, dams, light trains and other projects has helped ICA’s sales jump 50 percent in the first sixth months of this year even as the Mexican economy is estimated to have dropped 9 percent in the same period.

ICA will have more profit as investment requirements for toll roads ease, and the company will seek to implement “an interesting” dividend policy that is on par with other construction companies, Quintana said. ICA hasn’t paid a dividend since 1999, according to Bloomberg data.

The Mexican government will award more contracts this year, including toll highways and an $800 million water-treatment plant, Quintana said. These projects won’t be delayed by federal government budget cuts because they are financed with private capital, he said.

Toll Roads

A package of toll highways that was delayed earlier this year because of a global credit crunch will be split into two parts, with the government expected to accept bids on the first part in August, Quintana said. The package will contain toll highways between the cities of Mazatlan and Culiacan, in Los Cabos and other toll roads, he said. A call for bids on the second part, which includes a Guadalajara-Tepic highway, may go out by year-end, he said.

“They have restructured some of these packages, separating them and not making them as big,” Quintana said.

ICA may create a holding company for its toll highways, allowing it to sell shares in the unit or to create instruments for Mexican pension funds to invest directly into projects, Quintana said.

Pension Funds Investment

Mexican pension funds may invest between 6 billion pesos ($453.7 million) and 8 billion pesos in a group of toll roads owned by ICA and Goldman Sachs Group Inc., Quintana said. The equity, which would dilute ICA’s 20 percent stake and Goldman’s 80 percent stake, will help reduce the project’s 30 billion pesos of debt.

The 30-year project, awarded to ICA and Goldman after their 44.1 billion peso bid in 2007, may begin to pay dividends four years from now after completing a phase of heavy investment to build the highway, Quintana said.

ICA’s return on equity will also be boosted as its housing unit’s profit margins rise along with the number of homes it builds each year, Quintana said. The higher volume allows the company to reduce costs, he said. Quintana predicts the company will deliver 20,000 homes a year within five years, more than double the 8,100 homes it built last year.

With revenue from concession projects and housing to rise, ICA will reduce its dependence on civil and industrial construction units, which accounted for 77 percent of total revenue in the second quarter. Housing and concession projects, including the management of water systems, will likely account for 20 percent of revenue each in five years, Quintana said.

To contact the reporter on this story: Thomas Black in Monterrey, Mexico, at tblack@bloomberg.net.

Last Updated: July 31, 2009 13:47 EDT