ICA Debt, Shares Slumping on Pena Nieto Mexico Boom Delay

Empresas ICA SAB (ICA*) fell the most since September 2011 and bond yields rose as Deutsche Bank AG cut its recommendation on Mexico’s largest construction company after debt downgrades by Standard & Poor’s and Moody’s Investors Service.

The shares fell 8.6 percent to 25.61 pesos at 1:21 p.m. in Mexico City, after earlier dropping as much as 10 percent for the steepest intraday decline since Sept. 22, 2011. ICA’s $500 million 8.9 percent bonds due 2021 declined 0.2 cents to 86.7 cents on the dollar, pushing the yield to 11.5 percent, the highest since October 2011.

ICA’s shares have plunged more than 20 percent since Moody’s downgraded ICA’s debt on May 17, citing the Mexico City-based company’s high leverage levels and delays in public-works spending by President Enrique Pena Nieto’s administration. S&P yesterday trimmed the builder’s debt rating saying the lack of infrastructure investment could hurt the company’s sales. Those downgrades could see the company face margin calls, requests for more debt collateral, or force asset sales, among other pressures, Deutsche Bank analyst Esteban Polidura said today.

“Based on our experience covering Mexican homebuilders, we believe that sudden and widespread credit rating cuts could have three negative implications for ICA,” Polidura wrote in a report today.

The company could see credit restrictions, more expensive access to funding, or be forced to pursue new equity offerings, said Polidura, who cut his rating to hold from buy and reduced his target price to 31 pesos from 43 pesos.

S&P trimmed its rating on the company one step to B+, or four levels below investment grade, with a negative outlook. That followed a May 17 reduction by Moody’s to B2, or five steps below investment quality. Moody’s said it may lower the rating further.

To contact the reporter on this story: Brendan Case in Mexico City at bcase4@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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