ICA Jumps Most in 6 Years as Mexico Budget Cut Concern Eases

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  • Builder's rally leads advances on benchmark equity index
  • Company trimming costs, selling assets this year, CFO says

Empresas ICA SAB, Mexico’s biggest builder, rose the most in six years and led gains on the nation’s benchmark stock index after the government said it would limit spending cuts.

Shares of the company, which gets most of its revenue from state-funded projects, rose as much as 22 percent, the biggest intraday gain for the stock since October 2008. Trading was suspended and then restarted in Mexico City, while the bonds climbed the most in a week.

The shares surged after Finance Minister Luis Videgaray said Mexico’s reduction in public outlays would total about 100 billion pesos ($6 billion) in 2016 after taking into account money received from the central bank’s operational surplus. Speculation grew that the government would cut more than the 135 billion pesos projected in March after it reduced its 2015 growth forecast amid declining oil output. ICA said in its second-quarter report that public-sector clients account for about 80 percent of its backlog of construction contracts.

“People thought there could be an additional cut to what was already planned for public spending,” Hugo Mendoza, an Invex Casa de Bolsa SA analyst whose firm has a hold recommendation on the shares, said from Mexico City.

In addition to selling assets, ICA is cutting costs this year, Chief Financial Officer Gabriel de la Concha said in an interview in Mexico City.

The shares increased 17 percent to 7.42 pesos Wednesday as of 2:02 p.m. in Mexico City. They traded at 42.05 pesos as recently as March 2013. The company’s $500 million of 8.9 percent bonds due in 2021 rose 1.04 cents to 49.67 cents on the dollar, the highest since Aug. 18. The yield declined 0.60 percentage point to 27.21 percent.

Mexico has been cutting outlays because of the drop in the price of oil, which historically accounts for about a third of government revenue. Slumping crude output and slowed U.S. growth resulted in Mexico’s economic expansion repeatedly missing the government’s forecasts.