27 de mayo de 2015 / 16:54 / en 3 años

OHL bonds plummet to fresh lows on Mexico audit

LONDON, May 27 (IFR) - Obrascon Huarte Lain’s bonds tumbled in the secondary market on Wednesday after Mexico’s Communications and Transport Ministry said it will ask the Public Administration Ministry to audit its contracts with OHL Mexico.

The Spanish builder’s Mexican unit has become embroiled in a corruption scandal after recordings of individuals alleged to be OHL Mexico officials discussing overcharging for a public works project were leaked online this month.

OHL’s most recent bond, a EUR325m 5.5% 2023 note, fell from a cash price bid of 92.30 to just 86.80, according to Tradeweb prices. This is a new low for the notes issued at 93.866 to yield 6.5% in March, after banks running the deal backstopped it at lower yields than the market would accept.

The paper traded up as high as 99.60 in April, meaning it has fallen more than 12 points from peak to trough.

Troubles at OHL’s Mexico unit are concerning for bondholders as OHL Concesiones agreed a EUR300m-equivalent three-year margin loan in Mexican pesos in September 2013, providing its 24.25% stake in OHL Mexico as collateral.

OHL Mexico’s share price fell by as much as 7% on Wednesday.

“Besides from the margin debt, the big problem with OHL Mexico is that it’s free cashflow negative,” said a hedge fund investor. “It’s hard to see this from looking at the financials, though, as the Ebitda number includes a guaranteed return on its concessions from the government.”

OHL Mexico’s concessions have a “guaranteed profitability” formula, via which the government pays up later in the life of the concession if actual profits fall short. But the company includes the difference between actual and guaranteed profitability in its numbers before it is realised, listing it under “other operating revenues”.

“They’re effectively long dated government promissory notes, exactly the sort of thing which could be stripped away if you are caught committing fraud,” said the investor.

A second investor described the practice as “front loading Ebitda,” agreeing that it was worrying in light of the allegations against the company.

Concerns around accounting practices at Spanish concession firms were triggered when Abengoa reclassified a bond as non-recourse debt in November last year.

OHL Mexico did not respond to a request for comment. (Reporting by Robert Smith)

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