Homex Bonds Tumble in Selloff of Mexican Homebuilders

Bonds from Mexican homebuilders including Desarrolladora Homex SAB and Urbi Desarrollos Urbanos SAB (URBI*) plunged, pushing borrowing costs for the companies to the highest in at least three years.

Homex’s $250 million of securities due 2015 tumbled 9.12 cents on the dollar to 83.7 cents at 4:59 p.m. in New York, pushing yields up 4.8 percentage points to 15.6 percent, the highest since March 31, 2009, according to data compiled by Bloomberg. Urbi’s $500 million of 2022 bonds fell 5.05 cents to 57.22 cents, the lowest since the securities were issued in January 2012.

Investors this year have punished securities of the country’s homebuilders amid disappointing earnings, negative cash flow reports and changes in government housing policy to promote more capital-intensive apartment construction. Homex shares have fallen for nine straight days, leaving them down 26 percent this year at a record low.

“You can’t fight the market,” said Revisson Bonfim, an analyst at Espirito Santo Investment Bank, in a telephone interview. “It’s hard to say where the bottom is for homebuilders until sentiment turns.”

After markets closed in New York, Moody’s Investors Service said in a statement that it changed the outlook on Homex’s credit rating to negative from stable. Urbi’s rating was cut by two levels to B2, five levels below investment grade, according to a separate statement.

Homex shares tumbled 5.9 percent today to 19.67 at the close of trading in Mexico City. Urbi shares rose 7.2 percent today, snapping an eight-day plunge of 41 percent.

Visibility Lacking

“The lack of visibility around Mexican housing policies has left investors wondering” when cash flow will turn positive, Henri Alexaline, a fixed-income investor who helps manage $1 billion at FM Capital Partners Ltd. in London, said in an e-mail. “The smart money is buying at these levels, even if the ride will be volatile.”

Analyst reports this week heightened investor concerns that prices may have lower to go as Goldman Sachs Group Inc. cut its rating on Culiacan-based Homex to sell from the equivalent of hold and lowered its price targets for Mexicali-based Urbi. Credit Suisse Group AG maintained its recommendation of the two companies at the equivalent of sell.

Urbi has said it’s revising contracts with service providers, subcontractors and partners as part of its consolidation process to become “smaller, but more solid and flexible.” The companies also need to assess whether their land holdings will be valuable under new regulations.

“These companies are likely to have a difficult road in the next couple of years,” Bonfim said.

To contact the reporters on this story: Danielle Verbrigghe in New York at dverbrigghe@bloomberg.net; Boris Korby in New York at bkorby1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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