Fitch Ratings Downgrades Empresas ICA to 'CC'

Business Wire, August 8, 2002

Business Editors

CHICAGO--(BUSINESS WIRE)--Aug. 8, 2002

Fitch Ratings has downgraded the senior unsecured long-term foreign currency and senior unsecured local currency ratings of Empresas ICA Sociedad Controladora, S.A. de C.V. (ICA) to 'CC' from 'B' Rating Watch Negative. The rating actions apply to the subordinated convertible debentures due 2004.

The rating actions reflect continued limitations on ICA's financial flexibility and credit protection measures, delays in Mexican public sector spending, cancellation and/or postponement of key infrastructure projects, significant reduction in backlog and uncertain regional economic outlook. The assigned ratings also consider management's commitment to financial discipline, including debt reduction and successful asset divestments, and industrial construction partnership with Fluor Daniel.

A weakening domestic macroeconomic environment, coupled with delays in public spending, continue to pressure ICA's profitability and financial flexibility. Notwithstanding management's proactive efforts to improve the company's cost structure and reduce leverage levels, the current environment in Mexico and Latin America continue to negatively affect ICA's financial performance.

Credit protection measures remain under pressure, as reflected by an EBITDA-to-interest expense ratio of 0.9 times (x) and a total debt-to-EBITDA ratio of 10.7x. Although profitability has improved, it remains at very low levels, with an operating margin of two percent and an EBITDA margin of seven percent. As of June 30, 2002, ICA's cash balance equaled US$305 million. However, it is important to note that 87% of this total was held at its ICA Fluor Daniel subsidiary and 45% reflected advance payments on project work to be performed. Access to this cash may require approval from its partner, Fluor Daniel.

ICA's backlog continues to decrease, reflecting the lack of public spending in Mexico and delays or cancellations in a number of important projects. The reduced consolidated backlog also reflects the removal of MXP280 million corresponding to the 'Los Caracoles' project in Argentina, in response to that country's sovereign volatility. As a result, through the first six months of 2002, backlog decreased 37% and currently represents eight months of work (based on depressed volume of work performed in the 2Q02).

The outlook for investment in infrastructure and civil projects in Mexico remains uncertain, as the government continues to reduce public spending. This austerity is exacerbated by the absence of a supportive regulatory framework that may encourage private investment in the nation's energy sector. Recent events, including the cancellations of the new Mexico City airport in Texcoco and construction of the second level of the Periferico, further reduced an already limited portfolio of potential EPC business opportunities.

Empresas ICA (ICA) is Mexico's largest engineering, procurement and construction company in terms of revenues and assets. Established in 1947, the company is engaged in a full range of construction and related activities, including the construction of infrastructure, industrial, urban and housing facilities. ICA also participates in the development and marketing of real estate, the construction, maintenance and operation of highways, bridges and tunnels and in the management and operation of water supply systems and automobile parking facilities under concessions granted by governmental authorities.