Mexican businessman Carlos Slim, who amassed $23.8 billion from banking and telecommunications and played a key role in the merger battle over MCI, has started a three-pronged drive to make money from his country’s burgeoning construction industry.
By the end of June, Slim, 65, will spin off his $720 million Ideal fund, created to build and run services such as toll highways and waste-treatment plants. Late last year, Slim formed a construction unit at his Grupo Carso SA industrial company. And his Grupo Financiera Inbursa SA banking group has earmarked as much as $1 billion to finance building projects.
Still, access to financing doesn’t guarantee Slim’s construction ventures will succeed in competing against builders such as Spain’s Iberdrola SA and Mexico’s Empresas ICA Sociedad Controladora SA, says Stephaan Peeters, an analyst with Citigroup Inc.’s Grupo Financiero Banamex SA in Mexico City.
“The big advantage for Slim and his companies is his deep pockets and financial discipline,” says Peeters, who covers Grupo Carso. “The disadvantage is that they don’t have much experience.”
The engineering unit of Iberdola, Spain’s second-largest power company, and other builders, including South Korea’s SK Group, that already do business in Mexico also have access to funding, says Rafael Urquia, a Citigroup Inc. analyst.
“This is an industry with a lot of competition from companies with their own financing sources,” says Mexico City-based Urquia, who covers Slim’s Inbursa.
Construction in Mexico, Latin America’s largest economy, will grow 4.8 percent this year, according to the Mexican construction chamber. The government will award $8 billion of contracts in 2005, Urquia estimates.
“Because of the infrastructure demand in Latin American countries, this could be a very big and very strategic area for the group,” says Carlos Slim Domit, 38, Slim’s son and chairman of Grupo Carso.
Last year, 5.3 percent growth in the construction industry drove Mexico’s economy to expand 4.4 percent, the fastest pace in four years.
A lack of credit that followed Mexico’s 1994 peso devaluation gave international companies the opportunity to obtain contracts to build oil refineries and electricity plants. Some, such as Bilbao, Spain-based Iberdrola and Seoul-based SK Group, were able to offer financing.
Builders such as Tribasa SA and Grupo Mexicano de Desarrollo SA, both based in Mexico City, were unable to offer financing and won little work. They eventually defaulted on their debts.
ICA, Mexico’s largest construction company, avoided default by selling assets. In the first quarter of this year, the Mexico City-based builder won $188 million of road, airport and petrochemical contracts and now has a backlog of work valued at $1.8 billion, the most in six years.
