Mexico’s Ara Suspends Auction of Malls Owned With O’Connor

Consorcio Ara SAB has suspended an auction to sell a group of about $387 million of shopping malls and is now considering selling the centers individually.

The company was working with Morgan Stanley on the sale of the malls, which the Mexico City-based builder co-owns with New York-based private-equity firm O’Connor Capital Partners Inc., said investor relations official Alicia Enriquez. While the contract with Morgan Stanley is still valid, Enriquez said the formal sale process stalled when the top bidder failed to obtain sufficient financing.

“What we’re looking for is the best offer, and we’re not in a rush to sell,” Enriquez said in a telephone interview from Mexico City.

Keeping the properties means Ara will forego a cash infusion at a time when the home-building industry is reeling from a shift in government housing policy. Competitors Desarrolladora Homex SAB and Corp. Geo SAB filed earlier this year for bankruptcy, known as concurso mercantil in Mexico, and Urbi Desarrollos Urbanos SAB is working with Rothschild to consider options including restructuring debt.

Enriquez said Ara is studying the possibility of selling the malls individually, because some bidders in the original auction had expressed interest only in specific assets.

The malls were valued at around 5 billion pesos ($387 million), two people with knowledge of the properties said last year. Chief Executive Officer German Ahumada Russek had projected Ara would net at least 1.3 billion pesos from its portion of the shopping centers after paying associated debt.

Competitors Collapse

The collapse of its competitors means Ara is the sector’s biggest publicly traded company, with a market value of 7.6 billion pesos.

Ara shares rose 1.4 percent today to 5.81 pesos.

An official for O’Connor didn’t immediately respond to a phone call and e-mail seeking comment.

Ahumada Russek also said on a conference call last month that Ara is bound by the conditions of a syndicated loan to withhold dividends during the repayment period, unless the malls are sold or a waiver is obtained.

Homebuilder’s cash balances plummeted last year and some companies wrote down land reserves after the government reallocated subsidies and financing for low-income homes to encourage city living instead of rural developments. The move was a reaction to urban sprawl and the subsequent exodus that had turned some subsidized developments into ghost towns, even as builders stockpiled more inexpensive farm land.

Of the four top Mexican builders by revenue, Ara stayed afloat by confronting the transition with the lowest ratio of debt to earnings before interest, taxes, depreciation and amortization, or Ebitda. It also diversified to rely less on the lowest-income housing sector, where subsidies drive demand.

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