ICA Skips Debt Payment as $1.35 Billion Bond Default Looms

  • Builder will be advised by Rothschild, FTI to develop plan
  • Process set to spark Mexico's biggest bond default in 20 years

Empresas ICA SAB will skip a debt payment due by the end of the month as Mexico’s biggest construction company heads for the nation’s biggest default in at least two decades. Stocks and bonds declined.

The builder won’t pay $31 million in interest on its $700 million in bonds maturing in 2024, the company said Friday in a statement. ICA was using a 30-day grace period that ends Dec. 29. The company will be forced to halt payments on all of its $1.35 billion in overseas notes, eclipsing glassmaker Vitro SAB as the biggest corporate bond defaulter in Mexico since Moody’s Investors Service began tracking the data in 1995, according to the rating company.

The announcement caps a year in which ICA posted its biggest quarterly loss in 14 years as the government cut back infrastructure projects and the plunge in Mexico’s peso drove up the company’s leverage. The company will work on a cost-cutting and restructuring plan to be completed by mid-February, advised by Rothschild & Co. and FTI Consulting. ICA appointed board member Alfonso Gonzalez Migoya as co-chief executive officer.

“It will be a complicated process because there is a lot of debt with many different levels of seniority and security,’’ Rafael Elias, the head of emerging-market strategy at Cantor Fitzgerald, said in a note to clients. “There are also many assets with good value over which some may want to fight.’’

ICA fell as much as 29 percent in trading in Mexico City on Friday, closing down 24 percent to 3.97 pesos. ICA’s 2024 bonds dropped by 0.38 cents to 23.2 cents on the dollar at close of market, and the notes due in 2021 plunged 1.15 cents to 23.23 cents

A likely debt exchange with equity incentives may leave bonds with a valuation of 30 cents to 50 cents on the dollar, Elias said in an e-mailed response to questions. A forced liquidation isn’t probable, he said.

Moody’s doesn’t have plans to further downgrade its Caa3 rating in coming days, as the current level contemplates default and expectations for bondholders to recover slightly more than 50 cents on the dollar in a scenario of liquidation bankruptcy, analyst Sandra Beltran said in a telephone interview. Cross-default provisions mean ICA’s non-payment of its 2024 bond coupon triggers default in the company’s other two global bonds, she said.

ICA had coupon payments looming over the next two months for its two other dollar bonds maturing in 2017 and 2021, with the first one due Jan. 24. The company reported total debt of 57.9 billion pesos as of September 30.

Barclay’s Plc lowered its price target to 1 peso from 7 pesos on Friday, citing a possible scenario of bankruptcy and the company’s financial conditions being a "major burden" for its ability to win projects. ICA’s liquidity shortages have created "uncertainty" about its projects, including its backlog, and about the operations of its units, Monex Casa de Bolsa said in a note to clients on Friday.

Gonzalez Migoya, who will serve alongside CEO Alonso Quintana, is the former chairman and CEO of Grupo Industrial Saltillo SAB and a former financial executive at Alfa SAB. Chief Financial Officer Gabriel de la Concha will leave the company, to be replaced by Pablo Garcia.

ICA appointed Orlando Loera, a former Bank of America Corp. executive, as chief restructuring officer. He served in a similar role for Corp. Geo SAB, a Mexican homebuilder that defaulted in 2013.

“ICA has made this decision in order preserve liquidity, prioritize ongoing operations and fund projects currently under development,” the company said in the statement. “While this review is ongoing, ICA’s priority will be to serve its clients and to continue providing construction and concession-management services.”

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