Mexico Regulator Seeks to Penalize OHL Unit for Accounting

  • CNBV says company didn't properly inform market on traffic
  • OHL's Hidalgo sees no threats to company's debt covenants

Regulators who probed toll-road operator OHL Mexico SAB are seeking to penalize the company for its accounting practices and allege it didn’t properly inform the market about traffic levels.

Mexico’s securities regulator, known as the CNBV, said OHL failed to report the difference between the traffic levels it projected at the time it won concessions and the actual levels,  according to a filing by the unit’s Spanish parent Obrascon Huarte Lain SA. The CNBV is also looking into non-verifiable investments, according to the filing in Spain about Mexico’s toll-road operator.

OHL said in the filing late Sunday that the difference in traffic levels and the investments being looked into aren’t relevant, and that even if it’s forced to change accounting practices, its cash flow won’t be affected. OHL Mexico has 10 days to respond to the accusations, the company said in an e-mailed response to questions, noting that the CNBV findings aren’t final.

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The regulator’s results contradict a company-commissioned audit that found the accounting practices were appropriate. That audit followed a plunge in OHL Mexico’s stock after recordings posted to YouTube purported to show executives offering hotel stays to public officials. The OHL-commissioned probes also concluded there was no evidence executives paid off public officials or judges, helping lift shares 26 percent from a three-year low in June triggered by the recordings.|

Chief Executive Officer Sergio Hidalgo said on a conference call Monday that he saw no threat to the company’s debt covenants from the regulator’s findings.

OHL rose 0.2 percent to close at 23.28 pesos in Mexico City after Hidalgo’s comments, erasing an earlier decline of as much as 7 percent.

The regulator told OHL the company should have reported profitability guaranteed on investments as intangible assets, because its concessions didn’t include unconditional payment obligations as defined by the accounting method it used.

OHL Mexico has said in filings that most of its concession agreements guarantee a rate of profitability on investment. OHL Mexico counts the gap between “guaranteed profitability” and “actual profitability” as “other operating revenues,” according to its earning statements. The company has also said the audio recordings were illegally taped and maliciously edited and filed a criminal complaint against a traffic monitoring company for allegedly distributing the recordings.

The recordings have led to the resignation of one state official and one OHL Mexico executive involved in an alleged luxury hotel invitation, while two federal officials named in the recordings denied such invitations took place.

The case also spurred Moody’s Investors Service and Fitch Ratings to put Obrascon Huarte Lain on review for a credit-rating downgrade.

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