• New government to notify companies soon after it takes office
  • "Companies have stopped lobbying", says chief of cabinet

The incoming governor of Mexico’s Nuevo Leon state will notify the nation’s largest builder as soon as next month that it’s canceling a 17.7 billion-peso ($1.1 billion) aqueduct project, a member of his transition team said.

The deadline for Empresas ICA SAB and its partners to begin work on the project will expire at the end of September and the administration of Jaime ‘El Bronco’ Rodriguez has no intention of extending it, according to Enrique Torres, who is helping the governor prepare to take on Oct. 4.

The companies will be notified “as soon as we can, once in office,” Torres said in a telephone interview.

The cancellation comes at a moment when ICA is fighting to reduce its debt burden by selling assets amid a share rout. The company held 7.18 billion pesos of cash at the end of the second quarter, compared with total net debt of 47.8 billion pesos. A weaker peso also has made payments of ICA’s dollar bonds due in 2021 and 2024 more expensive. ICA shares have dropped 60 percent this year.

The consortium that won a contract to supply water to Monterrey includes a unit of Grupo Higa, owned by businessman Juan Armando Hinojosa, who came under fire for his close ties to Mexico’s president last year. The companies have stopped lobbying Rodriguez to salvage the contract, said Fernando Elizondo, who will serve as cabinet chief for the governor.

“The companies have been informed” of the cancellation, Elizondo said over the phone from Nuevo Leon. “There’s been no more lobbying.”

ICA declined to comment on the cancellation. The company has said it would sell or monetize 5 billion pesos in assets this year and the same amount next year.

ICA, which holds a 38 percent stake in the project, saw its bonds plunge this year after Rodriguez was elected in June on a pledge that he would cancel the project. The notes fell again last month following ICA’s sale of a stake in its profitable airport operator, which some investors interpreted as a signal that the Mexico City-based builder was facing a cash crunch.

Rodriguez told reporters last month the cancellation was definitive and that his cash-strapped government would have to find a cheaper way to boost the state’s water supply.
ICA said in April that the 230-mile Nuevo Leon aqueduct was the second-biggest project in its backlog. The project would have crossed three states to bring water to Monterrey, Mexico’s third-largest city, and was criticized by business groups that argued the cost was too high. The participation of Higa also sparked criticism.

Pena Nieto came under fire last year after it was reported his wife and finance minister bought homes from companies owned by Hinojosa. Shortly before the reports, the government canceled a high-speed train project worth $4.3 billion at the time which had been won by a consortium including Higa.

A unit of Higa has a 38 percent stake in the aqueduct project. Pena Nieto, the first lady and Videgaray have denied wrongdoing. Hinojosa’s company declined to comment for this article.

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