A benchmark Empresas ICA SAB bond fell the most on record after Moody’s Investors Service cut the credit rating of Mexico’s largest construction company amid slumping earnings and delays in public-works spending.
ICA’s $500 million of notes due in 2021 dropped 6.6 cents to 91.75 cents on the dollar, the largest decline since the bonds were issued in February 2011, based on data compiled by Bloomberg. Moody’s reduced Mexico City-based ICA’s corporate-family rating to B2, or five levels below investment grade, from B1 and said it may lower the rating further.
“The downgrade on ICA’s ratings was based on the company’s weaker-than-expected credit metrics, especially the very high leverage and modest interest coverage, as well as its weak liquidity,” Nymia Almeida, a Moody’s analyst, said in a report.
Bond investors have soured on ICA after first-quarter sales and profit missed analysts’ estimates. Yields on its bonds rose 0.96 percentage point in the past month through yesterday, according to data compiled by Bloomberg. Borrowing costs of similarly debt-rated Latin American corporate issuers fell 0.56 percentage point, according to Credit Suisse Group AG.
ICA shares fell 1.3 percent to 33.03 pesos in Mexico City, the lowest closing price since April 29. Yields on the 2021 bonds climbed to 10.48 percent, the highest since June 2012.
ICA declined to comment on the Moody’s downgrade, according to a spokesman who said he couldn’t be identified, citing company policy. Standard & Poor’s rates ICA as BB-, three levels below investment grade.
First-quarter revenue in the construction unit fell 41 percent from a year earlier and the backlog of contracts dropped 7 percent from Dec. 31, ICA said last month. Earnings before interest, taxes, depreciation and amortization slid 21 percent to 1.11 billion pesos ($90 million), the lowest in two years.
Mexico’s new government, which took office in December, has yet to announce detailed infrastructure spending plans and has been slow to award new projects, Moody’s said. President Enrique Pena Nieto has vowed to back projects such as railroads, highways and port expansions, as well as stepping up investment in Petroleos Mexicanos, the state-owned oil producer.
Pena Nieto is expected to release more information on his infrastructure plans with an announcement later this month of a so-called National Development Plan, said Luis Zarate, the president of the Mexican Construction Industry Chamber, a trade group representing builders.
A detailed blueprint of planned public works projects could be released as early as a few weeks after that, Zarate said this week.