Things are looking glum for Mexico’s largest construction firm: a downgrade of its credit rating, the tanking of its share price, a decline in revenues and rising debt have led analysts to recommend selling shares in Empresas ICA.
And that was before it missed a US $31-million bond payment on Sunday, entering a 30-day grace period instead, which resulted in its shares dropping 23% today to their lowest level in 13 years.
Both Moody’s Investors Services and Standard & Poor’s downgraded the firm’s credit rating in November, Moody’s from B3 to B2 and S&P from B to CCC+, due to poor operating and financial performance.
As of last Friday, ICA’s shares had lost 69% of their value since the start of the year, dropping from 18.01 to 5.4 pesos, well down from the 2007 share price of 70 pesos, a drop of 90%.
Today, they closed at just 4.09.
The financial group Banorte-Ixe saw only minimal recovery for next year, forecasting a 2016 share price of 8.2 pesos, but that was before the missed bond payment.
Third-quarter income was down 3%, reflecting a decline in public expenditures, slow growth, a weaker peso and an expectation for higher interest rates. Finally, the company’s debt totaled 57.9 billion pesos as of September 30, up 8% from the end of last December.
Those issues, and particularly its high leverage, led to analysts recommending selling ICA stock for its high risk.
ICA has obtained some new contracts, but not enough, and it is suffering along with much of the construction industry, which had higher expectations from the structural reforms of the current administration.
Yet stronger growth is just what the company needs to recover. As S&P said in its assessment, Empresas ICA must rely on favorable economic and business conditions in order to meet its financial obligations.
Source: Milenio (sp)