Mexico’s Bufete Will Default on Eurobond

Bufete Industrial, a Mexican engineering and construction company, said it will default on a $100-million Eurobond because of high borrowing costs and low profit margins. The company’s troubles coincide with a contract backlog of $850 million, the highest level in Bufete’s history. However, thanks to a bloated work force and low bidding, profit margins are just 3%, meaning Bufete is unable to keep pace with interest payments on its debt. The Mexico City-based company is seeking an equity partner that would reduce its debt costs in order to make lenders more comfortable. A group of 11 banks, led by Citigroup Inc.’s Citibank, has been trying without success to arrange financing for Bufete. The company’s poor earnings make it hard to come up with new financing, analysts said. In three of the last four years, the company’s earnings have been less than its interest payments. Analysts have mentioned closely held Bechtel Group Inc., the U.S. engineering and construction company with large overseas operations, as a possible partner.