The Hardest-Hit Bond in All of Emerging Markets Just Plunged 43%

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Bond investors in Mexico’s largest construction company are starting to sense desperation.

Empresas ICA SAB’s debt due 2021 has lost 43 percent this month, the most in emerging markets. The decline to a record low is remarkable even by the standards of developing nations, which are suffering one of the worst selloffs since the financial crisis.

ICA has plummeted in the wake of its decision earlier this month to sell a stake in its prized airport operator, a week after declaring it all but untouchable. The about-face is fueling speculation the company faces a cash crunch as cutbacks in government infrastructure projects reduce demand for its services and the sinking peso drives up its leverage.

The sale “‘was interpreted as meaning that the company had a liquidity problem,’’ Edgar Cruz, a debt analyst at Banco Bilbao Vizcaya Argentaria SA’s local unit, said from Mexico City. ‘‘Some bondholders are worried about a default scenario.’’

ICA said Aug. 7 that it sold the 2.9 percent stake in Grupo Aeroportuario del Centro Norte SAB, an airport operator known as OMA, for 967 million pesos ($56 million) and would use the money to pay debt.

Chief Executive Alonso Quintana said ICA made the move because it was able to convert some dollar debt into peso liabilities as part of the deal.

‘Paying Down’

‘‘We will be paying down all of our debt,’’ he said in an e-mail. ‘‘We’re not entering a restructuring or anything like that. We are continuing our strategy of building our portfolio of assets and monetizing them and paying down the debt whenever it’s due.”

Quintana said ICA has no plans to sell additional shares in OMA, which operates airports in Acapulco and Monterrey. The Mexico City-based builder retains control of OMA as well as a 33.4 percent stake.

The rout in emerging markets has contributed to the slump in ICA’s bonds, he said. The decline of the builder’s debt was the worst among more than 1,000 dollar-denominated corporate bonds from emerging markets tracked by Bloomberg.

ICA’s notes maturing in 2021 have fallen to 37.2 cents on the dollar from 73.2 cents on July 31. Yields have climbed to 35.9 percent, or 34.5 percentage points more than similar-maturity U.S. Treasury debt. That’s three times the 10 percentage-point threshold for securities considered distressed.

OMA accounted for 42 percent of ICA’s earnings before interest, taxes, depreciation and amortization in the second quarter, up from 28 percent a year earlier.

The airport operator was a bright spot in an otherwise grim quarter when sales from construction, ICA’s largest source of revenue, sank 12 percent. Its leverage soared to the highest since 2013, according to data compiled by Bloomberg.

‘Last Resort’

OMA is “their strongest asset,” Mariela Anguiano, an analyst at BCP Securities, said from Greenwich, Connecticut. “They said OMA was at the bottom of their list for asset sales. We were surprised when they announced the share sale just days later. It was like, ‘Oh, is this their last resort?’”

Carlos Legaspy, who manages $375 million at InSight Securities Inc., said he added to his holdings of ICA bonds last week.

“My baseline scenario is that they continue to muddle through,” he said from San Diego.

With Mexico’s economy deteriorating, ICA could still face more pain. Earlier this month, the central bank cut its 2015 growth forecast for the third time in the past six months.

Eighty-five percent of ICA’s backlog is denominated in the Mexican peso, which plunged to a record low this week. Almost half of its debt is in foreign currencies, mostly dollars. The peso gained 0.3 percent Wednesday to 17.1537 per dollar as of 1:16 p.m. in New York.

“The depreciation of the peso is a huge factor, as is the slowdown in construction that really dragged down second-quarter numbers,” Anguiano said. “They can only sell so many assets.”

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