Exclusive: Mexican state pension fund spent millions on failing…

Published 12/03/2018 in Uncategorized

Exclusive: Mexican state pension fund spent millions on failing…
FILE PHOTO: The logo of Mexican construction company ICA is seen in Mexico City, March 8, 2016. REUTERS/Edgard Garrido

MEXICO CITY (Reuters) – Mexico’s state workers’ pension fund plowed more than $20 million into ICA (ICA.MX) and became the largest shareholder as the builder spiraled toward insolvency, according to people familiar with the matter, with the fund’s investment set to be wiped out in a restructuring.

PensionIssste, which manages about 195 billion pesos ($10.5 billion) of mostly government workers’ retirement money, became the largest shareholder in ICA, with a stake of almost 10 percent, said three people with knowledge of the investment who spoke on condition of anonymity.

Many details of the transaction are not publicly available and none of the parties involved were willing to comment.

Half-way through 2015, ICA shares had sunk more than 50 percent from the year earlier as a crash in the peso had increased its heavy dollar-denominated debt load and lower government infrastructure spending led to a cash crunch.

Despite that PensionIssste began to buy up ICA shares and spent around 400 million pesos ($21.5 million) at an average price of around 7 pesos per share, one source said.

ICA, formally known as Empresas ICA SAB de CV, finally stopped making debt payments in December 2015, a fall from grace for what had once been Mexico’s largest construction company.

Mexican financier David Martinez’s vehicle Fintech lent ICA $215 million in 2016 and under the restructuring plan, will be the largest shareholder in the company that emerges from bankruptcy, according to documents on ICA’s website.

PensionIssste and other ICA shareholders will see their holdings diluted to 0.01 percent of the company, according to the documents.

The fund has asked banking and securities regulator CNBV to investigate whether ICA violated Mexican securities law, two of the sources said. PensionIssste is seeking to determine whether ICA failed to disclose important information to the market during its bankruptcy process, one source said.

ICA declined to comment on a list of questions submitted by Reuters. The CNBV said under law it could not comment.

It was not clear what PensionIssste, which changed its management team last year, could achieve with its claims, especially since ICA’s restructuring plan has been approved.

Sinha, the ITAM professor, said it was unlikely the fund would recover anything in the process.

“Too bad. That’s the risk you take when you buy stocks,” Sinha said.

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