Mexico Offers to Cover Up to 30% of Bank Loans to Homebuilders

Mexico is offering to cover as much as 30 percent of banks’ losses on loans made to the nation’s homebuilders, reducing concern about the industry’s ability to access financing.

The mortgage development bank known as Sociedad Hipotecaria Federal will offer guarantees to commercial banks to boost lending for housing by as much 50 percent, according to a government statement today. Under the program, Mexican homebuilders with “healthy balance sheets” will have access to additional funding of as much as 15 billion pesos ($1.2 billion).

Mexican homebuilders’ shares and bonds surged after the announcement. The Habita index of homebuilder jumped 11.4 percent today, paring its loss this year to 9.9 percent.

Yields on dollar debt from Desarrolladora Homex SAB, Mexico’s biggest homebuilder, tumbled 93 basis points, or 0.93 percentage point, to 9.81 percent today, according to data compiled by Bloomberg. It’s the biggest yield drop on a closing basis since they were issued in February 2012.

The yield on dollar debt from Urbi Desarrollos Urbanos SAB due in 2022 declined 80 basis points to 13 percent, extending its 38 basis point drop yesterday. Urbi’s shares surged 18.5 percent, heading to its biggest one-day rise since October 2008.

“If one of these companies has liquidity problems, especially the big companies, they can present to the banks a viable project and if the banks accept the project, they won’t have a problem,” Jesus Alberto Cano Velez, who heads Mexico’s mortgage development bank, told reporters today at an event in Mexico City.

Investors have pummeled securities from Mexican homebuilders this year amid disappointing earnings and ratings cuts. Concern for the sector has also been exacerbated since President Enrique Pena Nieto said Feb. 11 that he’ll use the government’s subsidized-housing program to promote apartment construction in cities, which require longer planning, building and sales cycles than single-construction housing.

Fitch Ratings and Standard & Poor’s cut Urbi’s credit rating by two levels this month after fourth-quarter profits fell 39 percent short of analysts’ estimates. Last month Homex reported a surprise fourth-quarter loss, deepening concerns the industry won’t be able to generate enough cash to pay off debt.

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