ICA Shares Plunge With Bonds After Mexican Builder Misses Coupon

  • Company says it'll use 30-day grace period to make payment
  • Shares tumble to a record low in Mexico City trading

Empresas ICA SAB shares fell to a record low and bonds tumbled after Mexico’s biggest builder said it would use a 30-day grace period to make a $31 million interest payment that was due this week.

Shares plunged 22 percent to 4.16 pesos at the end of the trading day in Mexico City, the lowest on a closing basis since ICA began trading in April 1992. The company’s $700 million in dollar bonds due in 2024 declined 1.8 cents to 20.2 cents on the dollar.

ICA has been battered in the stock and bond markets since reporting its biggest net loss in 14 years in October. At the time, the builder also said it hired Rothschild & Co. as a financial adviser, spurring speculation it will seek debt relief. Revenue at the company, which depends on the government for a majority of its contracts, has declined amid infrastructure spending cutbacks, while ICA’s leverage ratios have worsened due to the weaker peso.

There is “a strong possibility of creditors being forced to take a haircut,” Rafael Elias, the head of emerging-market strategy at Cantor Fitzgerald & Co., said in a note to clients. “I assume that they will approach banks first and bondholders second.”

Since its founding in 1947, Mexico’s largest builder has survived economic tumult at home and abroad. The company’s most recent woes began this summer with the gubernatorial election in the state of Nuevo Leon of an independent candidate who promised to cancel one of ICA’s largest projects, a 17.7 billion peso ($1.1 billion) aqueduct.

The project was one of two large infrastructure investments that have been shelved under President Enrique Pena Nieto after prices dropped for oil, which accounts for a third of the national budget. The other suspended project was a high-speed train from the city of Queretaro to Mexico City.

The company said in its last financial report that it lost 2.51 billion pesos ($150 million) in the third quarter, citing non-cash financial expenses from the peso’s decline. Sales were dragged down by “the condition of the Mexican economy, especially in the civil construction area,” ICA said. While the company’s backlog of construction contracts rose 3.6 percent from the previous quarter to 35 billion pesos, it remains below its level at the end of 2014.

While most of the builder’s pipeline of contracts is denominated in pesos, the company has $1.35 billion in dollar bonds.

ICA not paying its coupon “sets a very negative" precedent, Barclays analysts Pablo Monsivais, Benjamin Theurer and Gilberto Garcia write in research note. It “contributes to a much more negative stance from investors."

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