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IPO for Mexico Mortgage REIT Seen as Housing-Rally Signal

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Aug. 28 (Bloomberg) -- Mexico’s capital markets are signaling the nation’s battered housing industry may have finally touched bottom.

Concentradora Hipotecaria SAPI, which is known as FHipo and backed by founders of boutique investment bank Vace Partners, is preparing an initial public offering for the country’s first real-estate investment trust focused on residential mortgages. The REIT is working with the government-sponsored entity that originates 70 percent of Mexico’s home loans.

The IPO adds to evidence of a turnaround after Mexico’s three largest homebuilders collapsed in 2013. Housing helped drive the first expansion in Mexican construction in 19 months, closely held builder Servicios Corporativos Javer SAPI has said it may sell shares and developer Vinte Viviendas Integrales sold 200 million pesos ($15 million) of floating-rate bonds in June.

“If in 2015 we’re expecting there could be a significant recovery in the sector, it may make sense to promote it starting now,” said Ramon Ortiz, a Corporacion Actinver SAB analyst. “There’s a certain confidence once again in new players that the sector could be recovering. It’s a very good sign.”

FHipo is teaming up with the government-backed National Workers’ Housing Fund Institute. The REIT will use IPO proceeds to acquire 55 percent of the rights to mortgages from the lender, known as Infonavit, according to a prospectus on the stock exchange website. Shareholders would receive earnings from loans for which homeowners are charged 9.05 percent interest.

IPO Target

The offering is targeted to raise about 8 billion pesos, with a roadshow as soon as late September, said a person with direct knowledge of the matter who asked not to be identified because the details aren’t public. Chief Executive Officer Alfredo Vara said he couldn’t comment before the IPO process officially begins.

REITs for industrial and commercial property have surged since the asset class debuted in Mexico in 2011. An index of seven such trusts has almost tripled since then, outpacing the 28 percent gain for the benchmark IPC gauge of 35 Mexican stocks. Homebuilders have suffered.

After taking office in December 2012, President Enrique Pena Nieto shifted housing policies to promote construction closer to city centers over sprawling complexes in far-flung commuter towns. The change dried up projects at Desarrolladora Homex SAB, Urbi Desarrollos Urbanos SAB and Corp. Geo SAB, leading them to default on their debt.

Builders’ Woes

Stock trading in Homex was suspended in February, and Urbi and Geo have been halted since July 2013. All three companies hired financial advisers to restructure their obligations.

It may still be too soon to invest in the industry again, because Infonavit lending for new and used homes keeps contracting, according to Javier Gayol, a Corporativo GBM SAB analyst. Loans totaled about 200,000 in 2014 through July, 8 percent fewer than a year earlier, Infonavit’s website shows.

“The housing sector as an industry isn’t at its best moment,” Gayol said in a telephone interview in Mexico City. “It’s a more risky market for a REIT than the industrial market.”

While housing poses challenges for investors, the formation of 650,000 new families a year in Mexico offers opportunities to make money, according to Jose Roberto Solano Perez, an analyst at Monex Casa de Bolsa in Mexico City.

“The future of the housing sector is encouraging,” Solano Perez said in a telephone interview. “Population growth will demand new homes for the coming years.”

Home Demand

About 9.8 million families in Mexico are living without a home or in substandard conditions, according to the FHipo prospectus. The government moved to boost housing subsidies by 50 percent this year and is offering larger subsidies for lower-income homebuyers.

Infonavit projects about 390,000 new mortgages will be sought annually through its programs through 2018, with investment starting at 111 billion pesos this year and growing 6 percent annually, according to the prospectus.

FHipo’s chairman will be Carlos Vara, founding partner of Mexico City-based Vace and a former Citigroup Inc. investment banker. His brother, Alfredo, worked at Deutsche Bank AG’s Latin America global market sales group before co-founding Vace. Ricardo Cervera, another Vace founding partner and former Citigroup banker, is also an FHipo shareholder and board member.

Credit Suisse Group AG, Grupo Financiero BBVA Bancomer SA and Grupo Financiero Banorte SAB are handling the IPO, the prospectus shows.

The partnership with Infonavit means that FHipo’s earnings would come from mortgages intended to damp the risk of default. Infonavit collects payments directly from borrowers’ paychecks.

“The scorecard that Infonavit uses to grant credit gives you more certainty about the client’s capacity to pay,” Actinver’s Ortiz said by phone. The REIT “could be an interesting way to play the housing sector.”

To contact the reporters on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net; Jonathan Levin in Sao Paulo at jlevin20@bloomberg.net

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; Mohammed Hadi at mhadi1@bloomberg.net John Lear

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