Socio-Economics History Blog

Socio-Economics History Blog

Dollar-Debt Blows Up in Mexico, Pushes Biggest Construction Firm Toward Abyss

by mosesman

Building_explosion_implosion_collapse

  • Dollar-Debt Blows Up in Mexico, Pushes Biggest Construction Firm Toward Abyss
    by , http://wolfstreet.com/  
    After weeks of false promises, rampant speculation, and furious denials, Mexico’s biggest construction company, ICA, finally admitted that it will not pay the $31 million in interest outstanding on $700 million worth of bonds. The company’s shares plunged 24% to 3.93 pesos on the news, its biggest one-day rout since 1999.
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    “ICA has made this decision in order [to] preserve liquidity, prioritize ongoing operations, and fund projects currently under development,” the firm said in a press release. “Over the next 30 to 60 days, with the help of its financial advisors, Rothschild and FTI Consulting, ICA will work on a cost-cutting and restructuring plan.”
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    If ICA fails to make payments on all of its $1.35 billion in overseas notes, it will become the biggest corporate bond defaulter in Mexico since Moody’s Investors Service began tracking the data in 1995, just after the eruption of Mexico’s Tequila Crisis.
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    Acute Vulnerability
    The company’s travails began long ago but were recently magnified by political problems at home and economic forces overseas. Its revenues have sharply declined this year amidst infrastructure spending cutbacks by a fiscally challenged government, while the weaker peso has exacerbated the company’s leverage ratios.
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    ICA is among a number of Mexican corporations that are acutely vulnerable to a strengthening dollar and rising U.S. interest rates. The sudden rise in central bank-engendered liquidity after the outbreak of the Global Financial Crisis enabled Mexico’s biggest companies to borrow from the international markets in much larger amounts and for much longer periods than at any other time in history. And the slide of the peso against the dollar has significantly increased the amount of leverage at some companies.
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    Almost all of ICA’s contracts are denominated in pesos, while $1.35 billion of its debt is denominated in dollars. That’s the debt it’s now unable to pay. According to Bloomberg, the company’s total debt is 57 billion pesos, 10.75 times its earnings before interest, taxes, depreciation and amortization.
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    For many Mexicans, the collapse of this emblematic company will be a sad day in what has become a sore year for the nation’s economy. Since the 1950s ICA has been at the leading edge of Mexico’s industrial and urban transformation, building motorways, hydroelectric dams, drainage systems, waste treatment plants, railways, subway systems, stadiums, port facilities and a number of airports, including Mexico City’s Benito Juarez, which will soon be replaced by a new multibillion dollar airport being built on the city’s outskirts by a consortium led by ICA!

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