Homex Falls as Writedowns Spur Loss: Mexico City Mover
(Corrects size of loss in first paragraph of story that ran July 26.)
Desarrolladora Homex SAB (HOMEX*), Mexico’s biggest homebuilder by 2012 revenue, plunged the most on record after posting its biggest-ever loss of 10.2 billion peso ($809 million) as sales and property values tumbled.
The shares fell 30 percent to a record low of 4.66 pesos today in Mexico City trading, the biggest drop on a closing basis since the shares began trading nine years ago. It was the worst performance on the country’s benchmark IPC index, which rose 0.8 percent.
Mexico’s largest homebuilders, which also include Corp. Geo SAB (GEOB) and Urbi Desarrollos Urbanos SAB (URBI*), have hired advisers to help restructure debt accumulated while buying up properties that have since lost money because of shifts in government housing policies. Geo and Urbi both said yesterday that they would miss the Mexican stock exchange’s deadline this week for reporting quarterly results.
“We find almost no equity value for investors,” Credit Suisse analysts Eugenio Amador and Julian Bravo Lozano wrote in a note to clients today. “Continuity of operations going forward is unviable until a financial restructuring is completed and a new business plan re-establishes its assets and liabilities.” Credit Suisse cut its target price on the shares to 0.1 peso from 22 pesos.
The Mexico Habita Index of six homebuilders has fallen 68 percent this year as Homex, Geo and Urbi racked up losses on land reserves they bought far from city centers in anticipation of creating affordable homes in commuter towns. The government over the past year has shifted subsidies to favor apartment construction in urban areas, where commutes are shorter.
Homex, based in Culiacan, Mexico, had been projected to post a loss of 29 million pesos, the average estimate of four analysts in a Bloomberg survey. The net loss was more than six times its current market capitalization. A year earlier, Homex posted a profit of 568 million pesos. Second-quarter revenue fell 84 percent to 1.1 billion pesos.
The company took a 5.27 billion peso “downward adjustment” in land and in-process construction inventory after a viability analysis, according to a filing yesterday. Homex also set aside 2.1 billion pesos for uncollectable accounts receivable.
The writedowns followed the roll-out last month of the government’s new housing subsidy plan, Homex said. Under the rules, location is the main way for a plot of land to qualify for the program.
“The second quarter of the year continued to be very challenging for Homex as reflected in our results,” Gerardo de Nicolas, Homex’s chief executive officer, said on a conference call today with investors. “We continue to feel confident about Homex’s future despite these turbulent times that we’re facing.”
The results were “materially weak” and boost the chances the company will seek bankruptcy protection or a moratorium with creditors, Deutsche Bank AG analysts Esteban Polidura and Daniela Najar wrote in a note to clients yesterday.
Homex investor relations official Vania Fueyo declined to comment on the Deutsche Bank and Credit Suisse reports.
The homebuilder’s dollar bonds due in 2020 tumbled 3.51 cents to 28.78 cents on the dollar, heading for its biggest daily drop since May 17, according to data compiled by Bloomberg.
“We think recovery values in a restructuring may be close to where Homex bonds trade currently, but that there are downside risks in the ultimate commercial viability of Homex’s projects,” Barclays Plc analyst Autumn Graham wrote in a note to clients.
De Nicolas, the CEO, said the company plans to restart stalled housing projects in the second half of the year, and to emphasize Mexican operations over those in Brazil. The company didn’t take questions from analysts or journalists on the conference call, as it has in previous quarters.
Further reductions in asset values are possible, Corporativo GBM SAB analysts led by Javier Gayol wrote in a research note e-mailed today.
Earlier this year, the buider had said it didn’t expect to have to write down its properties.
“We’re confident in the quality and location of Homex’s land reserve, and we don’t anticipate writedowns in relation to our terrain,” Homex’s Fueyo said in a Feb. 26 e-mailed response to questions.
Geo shares lost 24 percent today to 2.20 pesos. Urbi’s stock was suspended from trading because of the missed reporting deadline, according to statement to from the Mexican exchange. Geo had applied for and received a waiver allowing a delay of 20 business days to report earnings, Francisco Valle, the head of promotion and issuers at the exchange, said in an e-mailed response to questions.
The homebuilder slump has forced bank creditors including Grupo Financiero Banorte SAB and Citigroup Inc. (C) to evaluate the likelihood of loan losses.
Banorte, Mexico’s third-biggest bank, said yesterday that it recorded 4 billion pesos of losses on loans to the three biggest homebuilders in the first half of this year. Citigroup Chief Financial Officer John Gerspach said July 15 that the lender has about $300 million in loans outstanding to the top three builders. The bank is monitoring the companies’ performance “as well as the value of our collateral,” he said.