Mexico’s biggest homebuilders tumbled for a third day after meetings with investors in New York and London failed to quash concern that the companies will struggle to finance themselves amid increased costs.
Urbi Desarrollos Urbanos SAB (URBI*) sank 4 percent to a record-low 3.88 pesos at the close of trading in Mexico City, while Desarrolladora Homex SAB (HOMEX*) lost 1.3 percent to 26.52 pesos. Corp. Geo SAB (GEOB) sank 1.4 percent to 9.99 pesos as the Habita index of six Mexican homebuilders fell 1.5 percent.
A Mexican housing-industry conference that began last week in New York and concludes tomorrow in London has done “little to promote confidence in the sector and instead left many questions unanswered,” Rafael Elias-Linero, a director of emerging-markets trading at Credit Agricole SA (ACA) in New York, wrote in a note today.
Investors have punished the builders this year amid disappointing earnings and ratings cuts. The government also is shifting the focus of public-sector housing programs from single-family homes to apartment buildings, which require greater initial cash investment.
Last week, the government announced a program to cover as much as 30 percent of banks’ losses on loans to the homebuilders as they cope with higher costs and reduced cash flows.
The Habita index jumped 11 percent the day the program was announced.
“That was an overreaction,” Carlos Hermosillo, an analyst with Grupo Financiero Banorte SAB in Mexico City, said in a telephone interview. “The guarantee program is good, but it does not solve the problem.”
Urbi is revising contracts with service providers, subcontractors and partners as part of its consolidation process to become “smaller, but more solid and flexible,” the company said in a statement dated yesterday.
The company’s relationship with land partners is based on revenue sharing from the sale of units as equity partners, according to the statement. “There is no related financial debt,” it said.
“Urbi reduces its initial working capital investment by paying for the land only when the units have been built and sold,” Selene Avalos, Urbi’s Chief Financial Officer said in the statement.
The company reiterated its 2013 revenue goal of about 12.6 billion pesos, with free cash flow to equity of about 400 million pesos.
“The company is planning to become a much smaller player in the next few years,” Banorte’s Hermosillo said. “If it’s not coupled with changes in profitability and free cash-flow generation it could not be of much help.”
To contact the reporter on this story: Danielle Verbrigghe in New York at firstname.lastname@example.org