Urbi Desarrollos Urbanos SAB, Mexico’s third-biggest publicly traded homebuilder by sales, hired Rothschild as a financial adviser to consider a debt restructuring, a person with knowledge of the matter said.
The company’s bonds due in 2022 fell 12.4 cents today to 44.28 cents on the dollar, the lowest price on record, according to data compiled by Bloomberg. Antonio Jorge, an Urbi investor relations official, declined to comment.
Securities of Mexico’s homebuilders have plunged as President Enrique Pena Nieto shifts government housing policy to favor capital-intensive apartment construction over single-family dwellings that previously garnered subsidies. Urbi shares are down 64 percent this year on concern the Mexicali, Mexico-based company may have to write down businesses and properties as cash holdings dwindle.
The hiring of Rothschild is a “bad signal,” Ray Zucaro, who helps oversee $300 million of emerging-market debt at SW Asset Management in Newport Beach, California, wrote in an e-mail. “If things were going well they would not need them.”
An official at Rothschild in Mexico City declined to comment, saying the company doesn’t talk to the press.
The company’s shares fell 1.3 percent to 2.94 pesos today in Mexico City trading. Desarrolladora Homex SAB, Mexico’s largest homebuilder, fell 6.1 percent to 17.5 pesos, the biggest loser on the country’s benchmark IPC index.
Both companies’ shares recouped some of their losses after President Enrique Pena Nieto said during a speech at a housing industry event that Mexico has a “firm commitment” to the sector. “We will keep working to give greater liquidity” to housing companies, Pena Nieto said.
Homex said in a regulatory filing today that it obtained a bridge loan, partly backed by the government, to help finance apartment construction. Culiacan, Mexico-based Homex said it was the first homebuilder to get a loan under the Sociedad Hipotecaria Federal guarantee program announced March 6.
The 144 million peso ($12 million) loan is a sign of “Homex’s strength and credibility as well as the good relationship with financial institutions,” the company said in an e-mail. The funds “will allow Homex to accelerate its ongoing building investments.”
While Urbi and other homebuilders have tried to shrink operations to conserve cash, “the solution remains mostly out of their control because of their significant exposure to government programs,” Morgan Stanley analyst Rafael Pinho wrote in an e-mailed report today. The firm cut its rating on Urbi’s shares to underweight from equal weight.
Concern that Urbi will become the first homebuilder in Mexico to impose losses on bondholders has grown because the company has the highest debt-to-earnings ratio in the industry. Urbi also was the biggest cash burner in 2012, with 5.4 billion pesos of negative free cash flow. Construction of apartments requires higher initial cash investments.
Moody’s Investors Service cut Urbi’s credit rating on March 20 to B2, five levels below investment grade, citing the company’s earnings and cash flow deterioration. Standard & Poor’s and Fitch Ratings rank the homebuilder three levels lower at CCC. That level means default is a “real possibility,” according to Fitch.
HSBC Holdings Plc analysts said last month that a restructuring of Urbi’s bank loans may “leave the rest of Urbi’s stakeholders deeply subordinated.”