Empresas ICA Sociedad Controladora, S.A. de C.V.

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Empresas ICA Sociedad Controladora, S.A. de C.V.

Mineria 145
Mexico City, D.F. 11800
Mexico
Telephone: (525)272-9991
Fax: (525)277-1428
Web site: http://www.ica.com.mx

Public Company
Incorporated: 1947 as Ingenieros Civiles Asociados, S.A.
Employees: 21,873
Sales: 11.49 billion pesos ($1.21 billion)(2000)
Stock Exchanges: Mexico City New York
Ticker Symbol: ICA
NAIC: 23311 Land Subdivision and Land Development; 23331 Manufacturing and Industriai Building Construction; 23321 Single Family Housing Construction; 23322 Multifamily Housing Construction; 23332 Commercial and Institutional Building Construction; 23411 Highway and Street Construction; 23412 Bridge and Tunnel Construction; 23491 Water, Sewer and Pipeline Construction; 23492 Power and Communication Transmission Line Construction; 339999 All Other Miscellaneous Manufacturing; 54133 Engineering Services; 551112 Offices of Other Holding Companies

Empresas ICA Sociedad Controladora, S.A. de C.V. is a holding company that, through its subsidiaries, is the largest construction and engineering firm in Mexico. The company is also active in eight other Latin American countries, Spain, and Puerto Rico, constructing highways, bridges, wharves, public transit lines, hydroelectric projects and electrical and gas lines, dams, water and sewage tunnels, chemical and petrochemical plants, factories, mining complexes, commercial developments, sports stadiums, hotels, dwellings, and parking lots. In addition, it conducts small-scale manufacturing of products for use in the oil exploration, petrochemical, power generation, and transportation industries, and it develops, arranges finances for, and invests in real estate development.

30 Eventful Years: 1947–77

Bernard Quintana Arrioja was educated to be a civil engineer at the National Autonomous University of Mexico (UNAM) in Mexico City, receiving a degree in 1947. That year he founded, with 17 others, Ingenieros Civiles Asociados, S.A. (ICA), an association of young civil engineers, with initial capital of 100,000 pesos (about $20,000). Quintana took the helm of this company as its gerente (director general). Most heavy construction in Mexico was being conducted by U.S. or European contractors, and ICA benefited from the government’s desire to Mexicanize the industry.

ICA’s first jobs included collaboration in the construction of the National Conservatory of Music and the Escuela Normal Superior (National Teacher-Training School). Another was the President Aleman housing project—the first of its kind in Mexico—a 13-story building. All of these buildings were in Mexico City. A 1950 commission to build a 16-story science building for UNAM was followed by the contract for other UNAM structures. Between 1948 and 1952 ICA completed dams on Rio Tepalcatepec in the state of Jalisco, its first heavy construction job. The company soon had eight subsidiaries for such purposes as obtaining bricks, gravel, sand, concrete, and machinery, and for the transport of materials. In 1956 ICA founded Laboratories Solum, the first Mexican enterprise dedicated to the mechanics of soil. It also founded a subsidiary specializing in building houses and industrial plants.

ICA remained extremely active throughout the 1950s. One of its biggest projects was Ciudad Satelite (1956–58), a Mexico City housing project of about 220 acres that accommodated an estimated population of 200,000 on 233 blocks and seven superblocks. The construction of a 40-mile stretch of the Chihauhua-Pacific railway line included a number of bridges. The La Soledad hydroelectric works and dam in the state of Puebla, begun in 1954, was the equivalent in height of a 40-story building. Other works completed included the Chinonautla aqueduct in the state of Mexico (1955–56) and a terminal for trams in Tetepilco (1957). “For most of its 51 years,” Joel Millman of the Wall Street Journal wrote in 1998, ICA “served almost as an adjunct to Mexico’s public-works bureaucracy. It was so dominant in projects like dams and bridges, it rarely deigned to enter competitive bids for private-sector jobs. Even when times were tough at home, ICA managed to thrive by exporting its expertise, usually with the help of Mexico’s state export bank.… Engineering, procurement and financing were handled through the bureaucracy, where ICA lobbyists had an inside track.”

ICA established a profit-sharing plan for its employees in 1959 and updated its name to Grupo ICA in 1962. The Infiernillo dam it built on the river Belsas (1960–66) was 485 feet high, the fifth highest in the world in its category. This was a turnkey project, meaning ICA was responsible for all phases up to actual operation. The company built the Electrómetro industrial park in Queretaro in 1963, a highway between Tijuana and Ensenada that year, and another between Mexico City and Queretaro. ICA built the peripheral ring of highways around Mexico City (1960–67). It undertook, in 1965, the largest share of the 870-mile Baja California highway linking Ensenada and Cabo San Lucas, a project not completed until 1973. Of great importance was its completion (1967–77) of a group of deep-drainage tunnels ten to 40 feet below ground to carry wastewater from Mexico City to a point 50 miles northeast, where they emptied into the Tula River. This project had been started by eight other firms but was assumed by ICA after a personal appeal to Quintana by President Luis Echeverría.

Grupo ICA’s highest profile project in the 1960s was its construction of the Metro, Mexico City’s rapid transit system, much of it a subway. Work on the first line began in 1967 and on two others the following year. The first phase, with more than 25 miles of track, was completed on time in November 1970. For the 1968 Olympic Games held in Mexico City, ICA built a 17-story telecommunications tower for the Palace of Sports, and the Villa Olimpica, a housing project consisting of 13 ten-story buildings and 16 six-story ones. It built eight offshore oil drilling platforms for Petróleos Mexicanos (Pemex), the nation’s state-owned oil monopoly, between 1966 and 1973. The company began its first projects outside Mexico in this decade, including roadwork in Nicaragua (1966), a building for thermoelectric machinery in Guatemala (1968), and roads in Guatemala and Honduras (1969). By 1970 it had done work in ten Latin American countries. Among these, Grupo ICA especially was active in Colombia, where it eventually built nearly half of the country’s hydroelectric capacity. It also left its stamp on that country in the form of thermoelectric plants, highways, bridges, tunnels, ports, industrial plants, commercial centers, public and private buildings, hotels, schools, and above all, in underground and elevated systems of transport.

Grupo ICA had 41 subsidiaries in 1972 and was participating in many joint ventures, plus holding minority shares in other enterprises. During the 1970s the firm prepared many areas for cultivation with dams and irrigation projects. Among its projects was a six-mile channel diverting the waters of the Tijuana River from the city and the construction of a thermoelectric plant in Altamira, Tamaulipas. ICA constructed a number of petrochemical plants and similar works for Pemex, extended the Mexico City deep-drainage system further, and built more Metro lines as well as extensions of existing ones. The company, which had constructed the Maria Isabel luxury hotel in Mexico City (1962), completed several others in the booming late 1970s, including two in Acapulco, two in Cancun, and one each in Ixtapa and La Paz. One of its most noted commissions was the construction of the new Basilica of Guadelupe in Mexico City, on the site of the holiest Catholic shrine in Latin America. Projects outside Mexico included a convention center and airport in Panama City.

Slowdown in the 1980s

By the time the company was reorganized as Empresas ICA Sociedad Controladora in 1979, it was a behemoth with more than 90 subsidiaries and a workforce of 95,000, which reached 115,000 in 1981. This included 11 companies making construction equipment, structures for oil drilling platforms, sugar mill equipment, hydraulic turbines, and piping. Normally ICA, as a private company, did not disclose its finances, but the Mexican business magazine Expansion classified it as the eighth largest reporting company in the nation in 1980, with revenues of 26.19 billion pesos ($1.15 billion).

The 1980s was a more difficult decade for Mexico, but Empresas ICA remained active. In 1981 it completed a 53-story tower for Pemex in Mexico City. Among other buildings were hotels for the Sheraton and Radisson chains and Cancun Towers as part of a joint venture with American Express Bank. Water supply works were constructed in Mexico City, Guadalajara, and Tijuana. An Olympic stadium was built in Zacatecas in 1984 and an old cigarette factory was remodeled to form Mexico City’s public library in 1989. ICA also constructed three airports during the decade. After Mexico City was struck by a destructive earthquake in 1985, ICA rushed the greater part of its 50,000 remaining employees to help rescue people trapped in the rubble, then donated 622 million pesos (about $2 million) and installed a network of 32 seismographs to analyze further tremors to determine whether they presented further dangers. Gilberto Borja, a veteran ICA executive, was now at the helm, having succeeded Quintana on his death in 1984.

Company Perspectives:

ICA’s mission is to be the foremost Mexican company in the development, construction and operation of basic infrastructure projects, with focus on service to clients, state of the art technical capabilities, professional ethics and uncompromising quality carrying out commitments.

Empresas ICA also branched out into other fields. In 1979 it acquired a stake in Automanufacturas S.A., a producer of auto parts, gradually increasing its investment until it became the majority holder in 1985. It shed this business in the early 1990s. A joint venture with Vulcan Materials Co. was established in 1987 to extract, process, transport, and sell limestone from the state of Quintana Roo to the United States. This required the construction of a port named Sectun in Quintana Roo. ICA also had taken a 26 percent share in the largest cement complex in Mexico, Cementos Tolteca, S.A. de C.V., a subsidiary of British-owned Blue Circle Industries pic, in the 1970s, but this was sold to Cemex, S.A. de C.V. in 1989. Typically, about 60 percent of ICA’s business had come from the public sector and 40 percent from the private sector, but by 1985 the ratio was 20:80 because of constraints on spending by the Mexican government.

During the presidency of Carlos Salinas de Gortari (1988–94)Empresas ICA was invited to participate in a program establishing privately run highways, with the constructor to take profits in the form of tolls for as long as 20 years before ownership reverted to the government. ICA participated in the construction of seven of these roads, including the one between Guadalajara and Tepic, Nayarit. In 1991 work on toll roads accounted for about one-quarter of ICA’s revenues of $1.37 billion, but costs were high and the program proved to be a financial disaster. ICA lost some $500 million on the scheme. In 1998 the company received 2.8 billion pesos (about $330 million) as the first installment of a government bailout. Another 1.5 million pesos was received in 1999. In 2000 bondholders threatened legal action to stop Empresas ICA from collecting a further $230 million in reimbursements.

Scrambling in the 1990s

In need of more funds to finance road construction, Empresas ICA became a public company in 1992, raising about $450 million by selling 25 percent of its common stock on the Mexico City exchange and American Depositary Receipts on the New York Stock Exchange. The company also stepped up its participation in foreign projects. In 1991 it earned about $90 million in 11 Latin American countries and the United States, where, based in Miami, a subsidiary formed in 1988 had constructed five schools and two real estate developments and, with a U.S. company, collaborated in the building of six metro stations. In 1993 ICA formed a partnership with the U.S. company Fluor Daniel Inc. Their first project was the construction of a thermoelectric plant in Chihuahua, the first of its kind in Mexico totally privately financed.

Beginning in 1992, ICA participated in the installation of a national network of fiber-optic cable for Telefonos de Mexico (Telmex). Avantel, another telephone company, then hired ICA Fluor Daniel to do the same. Other projects that occupied ICA in this period included continued extension of the Metro. By 1999 it had built 110 miles of rail rapid transit in Mexico City, Monterrey, Miami, and in Santiago, Chile and San Juan, Puerto Rico; participated in the construction of government offices in San Salvador, El Salvador; and constructed, with two other companies, a nine-mile Chicago water tunnel to capture and disperse waste water. Other foreign projects included oil pipelines and coal mines in Colombia, a major highway in Guatemala, a reservoir in the Dominican Republic, and a petrochemicals plant in Louisiana. In 1996 the company won a piece of a $6 billion hydroelectric project in Malaysia scheduled for completion in 2003.

Within Mexico, Empresas ICA’s hotel division contributed 257 million new pesos ($79 million) to the company’s 1992 revenues of 5.59 billion new pesos ($1.7 billion). ICA and Banco Nacional de Mexico, S.A. owned and operated the Radisson hotels in Mexico through a franchise agreement with Carlson Hospitality Group Inc. and owned and operated five Sheraton hotels in the resort destinations of Acapulco, Cancun, Huatulco, Ixtapa, and Puerto Vallerta in association with Sheraton International and American Express Co. In 1994, as Mexico plunged into a currency crisis and economic recession, ICA announced that it would sell the hotel division in order to focus on its core construction business. By the end of 1999 the company was completely out of the hotel business.

Borja resigned as chief executive of Empresas ICA in 1994 and was succeeded by Bernardo Quintana Isaac, the eldest of the founder’s six children and a company executive since 1963. Revenues dropped—in dollar terms—by almost half in 1995, mainly because of the devaluation of the peso. The price of company shares sold in New York fell from $30 to $4. Nevertheless, ICA continued to turn a profit, in part because it slashed its payroll from 42,000 to 19,000. With the national economy paralyzed, ICA turned increasingly to foreign projects, including a toll highway connecting downtown Panama City with the international airport. But the company also purchased a number of privatized government-run facilities, including a railroad, seaport terminals, pipelines, and warehouses. For example, a 20-year operating concession for one of Veracruz’s container terminals was sold in 1995 to ICA and a Filipino company, International Container Terminal Services, Inc., for 531 million pesos ($88.5 million) in 1995.

Empresas ICA continued to downsize in the late 1990s, choosing to pay down debt by shedding businesses and assets it considered not to be strategic. In 1999, for example, it announced plans to reduce expenses by more than $25 million and to reduce personnel by 20 percent. It sold its 13 percent share of Mexico’s longest railway, privatized in 1997, to Union Pacific Corp. for $87 million. Its 10 percent share of the Chihuahua thermoelectric plant went to El Paso Energy Corp. for $21.6 million. ICA’s stake in the Hotel Paraíso Radisson Perisur was purchased by Grupo Carso, S.A. de C.V. for $18 million. The company then made early debt payments of 1.32 billion pesos (about $137 million) and refinanced its credit lines. One of its problems was a $67 million loss on a public works contract in Bogota, Colombia, during 1998–99.

Key Dates:

1947:: ICA is founded by 18 young Mexican civil engineers.
1958:: ICA completes Ciudad Satelite, a big Mexico City housing project.
1967:: ICA begins work on the Metro, Mexico City’s subway system.
1981:: The company reaches its greatest extent, with 115,000 employees.
1992:: Empresas ICA makes its initial public offering of common stock.
2001:: ICA announces that it will continue to downsize to pay down its debt.

ICA announced in early 2001 that it planned further disinvestments during the year amounting to $260 million and a reduction of $300 million in its debt, which had reached $756 million in the fall of 2000. Accordingly, it sold its shares in three joint ventures with Vulcan Materials for $121 million. The company announced that it would invest $100 million in home-building and municipal services, including, in partnership with Canada’s Reichmann International, a long-planned Mexico City high-rise called Torre Mayor. ICA planned to become a major player in housing construction by competing for credits granted by the government for housing programs. The company also invested $100 million to build a complex of commercial buildings, offices, and residential areas on artificial islands in the Bay of Panama, and ICA Fluor Daniel won a $140 million contract for a power generation plant in the Dominican Republic.

Much of this foreign activity was meant to compensate for the loss of contracts in Mexico to foreign firms. Even when ICA won a government contract, it now tended to be a turnkey project that required company financing so that state agencies could avoid costly overruns. But when ICA won contracts abroad, the projects often proved more costly than expected. In 2000, the company was seeking $45 million, which it claimed was owed for street repairs in Bogota, and $25 million to build a natural gas pipeline in the Brazilian jungle. It also was considering withdrawing from its part in a $2 billion Venezuelan hydroelectric dam project because of a series of labor disputes.

In large part because of downsizing, ICA’s net sales fell from 15.52 billion pesos (about $1.64 billion) in 1999 to 11.49 billion pesos (about $1.21 billion) in 2000. This reduced its operating loss from 966.67 million pesos ($101.97 million) to 279.92 million pesos ($29.59 million). The net loss was scarcely reduced, however—from 1.66 billion pesos ($175.11 million) to 1.55 billion pesos ($163.85 million). The long-term debt was $627 million at the end of 1999. Of ICA’s 1999 revenues, construction accounted for 79 percent; aggregates and ports, 7 percent; concessions, 6 percent; manufacturing, 4 percent; and real estate, 3 percent. Mexico accounted for 71 percent of 1999 revenue; other Latin American countries, 15 percent; the United States, 8 percent; and Spain, 6 percent. Directors and executive officers owned 44 percent of the stock.

Principal Subsidiaries

Concesionarias ICA, S.A. de C.V.; Constructoras ICA, S.A. de C.V.; ICA Fluor Daniel, S. de R.L. de C.V. (51%); ICA Inmobiliaria, S.A. de C.V.; ICA Reichmann, A. en P. (50%); Ingenieros Civiles Asociados, S.A. de C.V.; Internacional de Contenedores Asociados de Veracruz, S.A. de C.V. (50%); Operación y Mantenimiento de Sistemas de Agua, S.A. de C.V. (50%); Perini-ICA-O&G.J.V. (25%); Reichmann Chapultepec A. en P. (50%).