Strangled by low oil prices, Mexico slow on payments

AP News
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Posted: Dec 15, 2015 4:23 PM

MEXICO CITY (AP) — Getting paid has always been hard for government contractors in Mexico, but seldom has the problem been so bad, as low oil prices are battering government finances.

Analysts and officials said Tuesday the problem has broken out into the open. Government contractors are openly complaining and experts worry the country's largest construction firm could be nearing bankruptcy.

The head of Mexico's top business chamber publicly rebuked President Enrique Pena Nieto on Monday, saying that late payments were putting Mexican businesses at risk of failing.

"The late payments and non-payments don't just put thousands of businesses at risk," Juan Pablo Castanon said at event with Pena Nieto. "They put at risk the jobs of thousands of families in Mexico."

The president's office said it had no response to the comments.

The problem has been broached before, and Mexico's antiquated bureaucracy has always been slow with payments. In one case, hotels in the southern state of Guerrero complained the government hadn't paid them for hosting thousands of federal police officers dispatched to the troubled state.

But steep declines in oil prices — the source of about 37 percent of government revenue in Mexico — has battered the Pena Nieto administration and forced cutbacks.

Eugenio Aleman, a senior economist at Wells Fargo Securities, said the drop in oil prices had been "a very hard blow" for the government. "I think they're taking their time" with payments, "trying to organize what little amount of funds they have right now."

In recent months, hotels in the southern state of Guerrero complained the government hadn't paid them for hosting thousands of federal police officers dispatched to the troubled state.

Mexico's largest construction company in the public-works sector, Empresas ICA, appears to be teetering near insolvency after delaying a $31 million interest payment due on bonds in December. ICA, one of Mexico's oldest construction firms, has a 30-day grace period to make up the payment. Most of its work is for the government, or state-sector companies.

Moody's Investors Service this month downgraded ICA bonds to Caa3, saying its failure to make the interest payment "reflects the precarious liquidity of the company and is a likely precursor to more formal refinancing process or distressed exchange."

ICA didn't help itself by taking out a lot of debt denominated in US dollars, while much of its income is denominated in pesos — a currency that has devalued by 16 percent against the dollar over the last year, and 31 percent over the last two years.

But one government official who was not authorized to be quoted by name said the company's cash-flow problems were worsened by late payments from the government-owned oil company, Pemex, and some state-level governments.

Pemex said it had no immediate comment and ICA investor relations representative Elena Garcia said the company, by policy, does not make comments to the press.

Delgado said he thinks the government will do what it can to keep ICA from bankruptcy.

"What the government is doing is to try to speed up the payments, so the company won't have problems," Delgado said. "It's not aid for the company, it's just a question of speeding up the process so the company gets what the government owes it, or what is coming due soon."