Bonds and shares of Desarrolladora Homex SAB, Mexico’s biggest homebuilder, slumped after a surprise fourth-quarter loss deepened concerns that the industry won’t be able to generate enough cash to pay off debt.
Yields on Homex dollar bonds maturing in 2020 soared 71 basis points, or 0.71 percentage point, to a record high of 10.94 percent at 4:09 p.m. New York time. Shares fell 7.7 percent, the most in 12 weeks, to 25.07 pesos.
Homex reported a fourth-quarter net loss of 206 million pesos ($16 million), according to a filing with the Mexican stock exchange, surprising analysts who estimated the company would report a profit of 846 million pesos, according to the median of five forecasts compiled by Bloomberg.
“Expectations were wrong,” Claudio Robertson, the head of fixed-income trading at Investment Placement Group in San Diego, said in telephone interview. “The market thought Homex was different. They tried to make a differentiation between Homex and the rest but reality was unforgiving.”
Disappointing’’ cash flows and weak results from Brazilian operations prompted Carlos Hermosillo, an analyst with Grupo Financiero Banorte SAB, to cut the stock to hold from buy.
“The company has already stated that the first quarter is not looking very strong” Hermosillo said in a telephone interview.
Homex generated negative free cash flow of 6.4 billion pesos on a consolidated basis last year, according to the company’s report.
Mexico’s Habita index of homebuilder shares has plunged 17 percent since Mexican President Enrique Pena Nieto said Feb. 11 that he’ll use the government’s subsidized-housing program to promote apartment construction, which requires bigger initial cash outlays than single-family home construction.
Real estate is the worst-performing sector in the bond markets in the past month. Notes due 2022 from Urbi Desarrollos Urbanos SAB, Mexico’s third-largest homebuilder, have lost 9.2 percent, according to data compiled by Bloomberg. Corp. Geo SAB’s bonds due in 2020 have dropped 11 percent.
Shares of Corp. Geo, the second-biggest homebuilder, have fallen 28 percent in the past month. Urbi has plunged 37 percent, the worst performance on Mexico’s benchmark IPC index.