Mexico Offers Credit Help for Builders Struggling With Shift

Mexico’s government promised to help increase lending to homebuilders to sustain construction as the industry’s biggest companies slash output and move to restructure debt.

Deputy Finance Minister Fernando Aportela said development banks will provide at least 5 billion pesos ($387 million) of syndicated credit lines. The lines, issued through Sociedad Hipotecaria Federal and Nacional Financiera, will produce about 50,000 homes, he told reporters in Mexico City. The government will also offer guarantees for debt sales of about 5 billion pesos so that issuances can get higher credit ratings and attract institutional investors such as pension funds, he said.

The financing announcement was part of the government’s retooled housing plan, which aims to arrest urban sprawl without prompting further contraction in the industry or impeding efforts to lower a housing shortage. While the plan expands a push toward city development, it also provides some concessions to help the industry adapt to a shift in subsidies that’s reduced demand for remotely-located developments, where many builders already sell homes and own land reserves.

Desarrolladora Homex SAB (HOMEX*), Corp. Geo SAB (GEOB) and Urbi Desarrollos Urbanos SAB (URBI*), Mexico’s three biggest publicly-traded homebuilders, are scaling back construction and considering restructuring debt after cash plummeted, partially as a result of housing policy changes. The companies have been saddled with reserves of inexpensive rural terrain, intended for the creation of commuter towns with homes worth as little as $20,000, as the government insists its subsidies must focus on city development in areas with pricier land costs.

Cash Drain

Homex, Geo and Urbi all had their cash balances drop at least 85 percent in the first quarter. All three companies have been downgrade by ratings agency as they missed interest payments on bonds.

The development banks plan to start disbursing funds from the syndicated credit line “over the next few weeks” and the bond backing program should be ready in about two months, Luis Madrazo, head of the development banking unit at the Finance Ministry, said today in a conference call with investors.

While the government did little to change how it defines city limits, it created a path to subsidy eligibility for outlying neighborhoods already under development, said Jorge Carlos Ramirez Marin, minister of urban and agrarian territorial development, who spoke at the the press conference. He said the government is increasing subsidies by 26 percent this year.

Housing Shortage

Mexico’s current housing shortage combined with demographic growth means Latin America’s second-biggest economy needs 300,000 to 400,000 new homes a year, according to a document distributed at the press conference. As of 2015, developments’ location and proximity to jobs and services will also determine whether home buyers can get credit from state-backed mortgage lenders to buy a property there, the ministry said.

The government estimates that 68 percent of registered land reserves will be eligible for subsidies under the new classification system.

Urbi shares have declined 71 percent this year, the benchmark IPC (MEXBOL) equity index’s largest decline over the period. Homex, down 69 percent, and Geo, losing 63 percent, are the second- and third-worst performers. The Habita index of homebuilders advanced 3.1 percent today, paring its decline to 55 percent this year.

To contact the reporter on this story: Jonathan Levin in Mexico City at jlevin20@bloomberg.net

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

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