Empresas fka ICA

[chmcnfunds]

Moody's changes ICA´s outlook to stable from negative; affirms B2 ratings

Approximately USD 1.4 billion in rated debt instruments affected

New York, December 18, 2014 -- Moody's Investors Service has changed Empresas ICA, S.A.B. de C.V. (ICA)'s rating outlook to stable from negative and affirmed the company's B2 corporate family and senior unsecured debt ratings.

RATINGS RATIONALE

The outlook change was prompted by our expectation of a recovery in the construction industry fundamentals, along with the refinancing of ICA´s short term debt and the gradual improvement in its credit metrics. We believe that the lower leverage level of 6.8 times as of September 31, 2014 (from 11.6 times in December 31, 2012) could be temporary, reversing as the company's construction activity reactivates. However, we don't foresee a material deterioration in ICA's credit profile over the next quarters, given the company's focus in reducing debt with proceeds from assets sales and its leverage target of consolidated reported net debt / EBITDA of 5 times.

Also supportive of the stable outlook are the positive business prospects in Mexico, in the context of the country´s energy reform and the new National Plan for Infrastructure. Given the sizeable projects, the local content requirements and the complexities of operating in a country like Mexico, company's like ICA, with expertise in the execution and long term relationships with government-related entities, should benefit the most. For example, we expect to see an increasing number of consortiums formed with local players and, since around 50% of the investments will target the energy sector, the joint venture between ICA and Fluor would be very well positioned to capture a significant portion of it. However, we also anticipate that these positive prospects will attract foreign construction players, increasing competition. Somewhat offsetting this competitive risk is ICA's favorable operating track record as well as its solid long-term business relationship with major government-related entities such as Pemex (A3 stable) and CFE (Baa1 stable). This advantage is particularly relevant when partnering with selected international and local companies to bid for large construction or concession projects.

ICA's ratings are based on the company's weak credit metrics related to debt leverage and interest coverage as well as historically weak liquidity. The ratings also factor ICA's high dependence on short term bank debt renewals as well as asset sales to fund operations and committed equity injections to its portfolio of concessions. Supporting ICA's ratings are its leading position in the construction industry in Mexico, its long-term track record of participating in the largest construction and infrastructure projects in the country, and the company's diversified and solid portfolio of concessions in the road, airport, water treatment, and ports, among others, most of which have solid margins and favorable earnings prospects.

ICA's liquidity risk is high, tempered by a high reliance on short term debt to fund working capital needs mainly related with construction business. However, the company has been recently improving its credit profile by extending debt maturities. In the 2Q14, ICA placed USD 700 million in senior notes due 2024 and the proceeds were used to prepay USD 200 million in notes due 2017 and to refinance short-term debt at the construction segment, improving significantly the company's debt maturity profile. As of September 30, 2014, ICA had about MXN 7.2 billion in cash and cash equivalents, which was enough to cover MXN 6.7 million in debt maturing in the next 12 months. Nevertheless ICA has about MXN 2.7 billion in capex planned for the same period, mainly related to committed equity contributions to concessions, which must be funded before the end of 2014.

The stable outlook on ICA's ratings reflects its sustainable recovery in operating performance and better visibility about the cash flow generation at the construction business in Mexico. The outlook also considers our expectation that, although recovery in the construction segment will result in higher working capital needs, liquidity and credit profile will not be materially deteriorated as a result. Supporting our expectations are ICA's recent focus on refinancing operating debt at corporate level to be later paid with proceeds from its assets recycling process. Also considered in our expectations is the company's net leverage target of 5 times in the next couple of years.

If the company's maturing concession portfolio either increase dividends to ICA or is monetized via asset sales, with the proceeds used for significant debt reduction, a positive credit momentum could develop. In this regard, the ratings could be positively affected if the company manages to maintain its consolidated Moody's-adjusted leverage below 6.5 times and reported leverage at construction business below 4 times on a sustained basis, while maintaining positive revenue growth. For an upgrade to be considered, ICA's operating margins should be stable and it would have to maintain a backlog sufficient to cover at least 12 months of execution.

ICA's ratings could be downgraded if the company's liquidity position worsens with limited prospects for a short-term improvement, if we believe that revenue or margins during the next 12 to 18 months will be weaker than expected, if debt leverage increases further, or if it becomes difficult for the company to renew its revolver credit lines, which today fund its working capital needs.

The last rating action on ICA was on May 20 2014, when Moody's assigned a B2 rating to ICA's up to USD600 million guaranteed senior unsecured notes due in 2019. Please see the related press release for further detail.

Headquartered in Mexico City, Empresas ICA, S.A.B. de C.V. ("ICA") is the largest infrastructure and construction company in Mexico. In the last twelve months (LTM) ended in September, 2014, ICA's revenue and Moody's-adjusted EBITDA margin were about USD 2.6 billion and 26.7% respectively. ICA is also the main sponsor in 18 concessions, from toll roads to water treatment plants, among others.

The principal methodology used in these ratings was Construction Industry published in November 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Sandra Beltran
Analyst
Corporate Finance Group
Moody's de Mexico S.A. de C.V
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Mexico
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Marianna Fernandes Rodrigues Waltz
Associate Managing Director
Corporate Finance Group
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https://www.moodys.com/research/Moodys-changes-ICAs-outlook-to-stable-from-negative-affirms-B2--PR_313727

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