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Mexico offers to buy debt of canceled airport, but work continues

EconomyDec 03, 2018 08:26PM ET
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© Reuters. Workers sign a list before entering the construction site of the new Mexico City International Airport in Texcoco

By Anthony Esposito

TEXCOCO, Mexico (Reuters) - Mexico said on Monday it would repurchase some of the debt used to fund a partly-built airport canceled by the new president, even as work at the site continued for the time being.

Veteran leftist Andres Manuel Lopez Obrador said in October that he would scrap the $13 billion Mexico City airport, arguing that the project was tainted by corruption and would be expensive to maintain.

On the first weekday of his new administration, the Mexico City Airport Trust said it would buy back up to $1.8 billion of $6 billion in debt issued to fund the airport, in an offer that runs through the start of January.

Mexico's peso initially rose on the news, but later pared most gains over uncertainty on the plan going forward.

At the airport construction site on a dried-out lake bed on the eastern flank of the capital, laborers shuffled in and out. Trucks lined up to get into the site, workers operated huge cranes and heavily armed guards stood at the metal gates to keep out any intruders, including journalists, from entering.

Workers that Reuters spoke to said some of their colleagues had been dismissed and that certain projects, such as building the airport's runways, had been scaled back or stopped outright.

"This was going to generate thousands of jobs, and this jerk comes and cancels the project," said 37-year-old construction worker Juan Cruz Morales. "What did (Lopez Obrador) come to do? Help the people, bring us jobs and improve things? Or to screw us over?"

The airport construction created 48,000 jobs and was expected to generate more than three times that amount by completion, the previous government said.

MARKETS NOT TOTALLY CONVINCED

The Oct. 29 cancellation of the airport project triggered a slump in Mexican assets due to concerns about how Lopez Obrador would manage Latin America's second largest economy.

Analysts said news of the buyback showed the veteran leftist was serious about paying investors, but that worries about the new government would persist.

This is "a first step in trying to fix a complicated situation. It remains to be seen how the government will actually proceed with the cancellation of the project," said Alejandro Velasco, vice president, emerging markets fixed income at Allianz (DE:ALVG) GI.

At Lopez Obrador's first news conference since taking office on Saturday, the president said bondholders' investments would be guaranteed and more details would be offered on Tuesday after he met with Finance Minister Carlos Urzua.

"What I reiterate is that the investments of the shareholders are guaranteed, and that agreements are also being reached with the construction companies," Lopez Obrador said.

The yield on Mexico's benchmark 10-year peso bond (MX10YT=RR) bid down 19 basis points and the benchmark S&P/BMV stock index (MXX) jumped more than 2 percent in early trading, but pared gains to around 0.8 percent.

A rally in riskier assets also supported Mexican markets following news this weekend of a U.S.-China trade truce.

The new head of the Mexico City airport group said some construction at the site will continue in coming weeks to meet obligations during the buyback offer.

Still, workers were keenly aware that the clock was running out.

"Many people even in our own company have been fired ... we're unsure about how much longer we're going to have work," said 25-year old construction worker Rene Ramirez.

Mexico offers to buy debt of canceled airport, but work continues
 

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