ICA Reaps $116 Million as Mexico Prison Work Moves to Hunt’s CGL

Empresas ICA SAB (ICA*), Mexico’s largest construction company, will receive $116 million from CGL, a U.S. building design and management company, as the two create a partnership to service and develop Mexican prisons.

ICA will hold 30 percent of the venture and will contribute two existing 22-year contracts to provide non-correctional services at two penitentiaries, Mexico City-based ICA said in a statement yesterday. CGL, a unit of El Paso, Texas-based Hunt Cos., will own 70 percent.

The agreement follows asset sales last year in which ICA raised more than $600 million after credit-rating downgrades by Moody’s Investors Service and Standard & Poor’s. After the deal is completed, ICA will no longer consolidate the prison business or related project debt in its financial results.

“We believe that ICA is moving forward in their capital recycling strategy,” Eugenio Amador, a Credit Suisse Group AG analyst, said in a report after the venture was disclosed. “The company is highly likely to continue to monetize assets from their concessions portfolio,” he said. Amador has an outperform recommendation on the stock, the equivalent of buy.

The deal, which requires approval from bondholders and the Mexican government, will probably close by the end of the first quarter, according to the statement. The companies said they’ll seek additional prison-related work in Mexico.

Asset Sales

The contracts it’s providing to the CGL venture “are clearly mature assets that ICA can monetize,” Chief Executive Officer Alonso Quintana said in the statement. “The resources received will also assist ICA in continuing our mission of developing infrastructure assets in a variety of sectors.”

Last year, ICA generated about 2.85 billion pesos ($214 million) in sales and 1.44 billion pesos in adjusted earnings before interest, taxes, depreciation and amortization from its prison business, according to the statement. Debt linked to the business stood at 10.1 billion pesos as of Dec. 31.

The builder said it won the contracts in 2010 and invested 13.8 billion pesos in the prisons, which it developed with technical assistance from CGL. The prisons, owned and run by the government, began operating in 2012.

ICA raised about $215 million last year by selling some of its shares in airport operator Grupo Aeroportuario del Centro Norte SAB. It also sold its stake in a tollway operator to majority owner Goldman Sachs Group Inc. for about $395 million.

Moody’s cut ICA’s credit rating on May 17 by one level to B2, or five steps below investment quality, citing high leverage and delays in public-works spending. S&P followed suit on May 21, reducing ICA’s ranking to B+, four levels below investment grade.

The builder’s sales fell 17 percent to 23.4 billion pesos during the first nine months of 2013 as project delays hurt construction revenue, it said Oct. 25. Net income fell 77 percent to 384 million pesos.

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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