NEW YORK--()--Fitch Ratings has placed the ratings of Urbi Desarrollos Urbanos, S.A.B. de C.V. (URBI), Servicios Corporativos Javer, S.A.P.I. de C.V. (Javer), Desarrolladora Homex, S.A.B de C.V. (Homex), and Corporacion GEO, S.A. de C.V.(GEO) on Rating Watch Negative. These rating actions are a result of pressure on free cash flow, an increase in lending for the purchase of used houses, uncertainty surrounding the potential support by the government for companies in the industry that could come under financial pressure, and a decline in investor confidence toward the sector A complete list of the affected ratings follows at the end of this release.
The movement toward the construction of apartment houses in urban areas should result in negative operating cash flow for Javer, Homex, URBI and GEO during 2013 as they struggle with a longer working capital cycle. Last week President Pena Nieto's administration announced its intention to continue refining the housing policies of the prior government. While the details of the new government's measures are not yet clear, Fitch anticipates that the housing policy will continue to reinforce vertical housing in urban areas.
As a consequence of the gravitation of the market away from single houses on the periphery of urban communities, homebuilders will need to sell a portion of their existing landbanks that are now unsuitable for future projects. Most of the Mexican homebuilders' land reserves were built prior to the change in the government's new housing policy, which is intended to promote the orderly development of urban areas. The precise level of write-downs is uncertain as the location and quality of the land banks is not generally disclosed. Further cash flow pressure is expected in the form of capital expenditures as the companies try to develop land reserves more in line with the government's housing policy and market demand.
An additional challenge faced homebuilders such as URBI, Javer, Homex, and GEO will be reducing inventory levels during 2013. Inventory levels have increased due to the delay of government programs and the change in administration. Inventories have also arisen as a result of a decline in the level of mortgages granted for new houses by Infonavit, as the agency's lending for used houses has increased. This situation reflects a misalignment between the product mix of the homebuilders and homebuyers preferences for available used houses, many of which are located in more central urban areas, which appeals in terms of cost, time of job commute, infrastructure and services.
GEO, Homex, and URBI have debt coming due in 2014, 2015, 2016, respectively. Cash flow pressure during 2013 could acerbate their needs to access capital markets during a period in which investor sentiment toward the sector has waned. At this time, the government is in the preliminary stages of articulating its policies. Unless policies are developed in the near future that will help these companies lower their inventory levels and sell their unusable land, rating downgrades are likely.
Fitch has placed the following ratings on Rating Watch Negative:
Urbi Desarrollos Urbanos, S.A.B. de C.V. (URBI)
--Foreign Currency Issuer Default Rating (IDR) 'B'
--Local Currency IDR 'B' ;
--National Long-term rating 'BBB-(Mex)';
--US$150 million senior notes due 2016 'B/RR4';
--US$300 million senior notes due 2020 'B/RR4'.
--US$500 million senior notes due 2022 'B/RR4''.
--MXN600 million in CBs due in 2014 'BBB-(mex)';
--National Short-term ratings 'F3(mex)';
Servicios Corporativos Javer, S.A.P.I. de C.V. (Javer)
--Foreign currency Issuer Default Rating (IDR) 'B';
--Local currency IDR 'B';
--USD270 million senior unsecured notes due 2021 'B+/RR3'.
--USD6.3 million senior unsecured notes due 2014 'B+/RR3'.
Desarrolladora Homex, S.A.B de C.V. (Homex)
--Foreign currency Issuer Default Rating (IDR) 'BB-';
--Local currency IDR 'BB-';
--USD250 million in senior notes due 2015 'BB-';
--USD250 million in senior notes due 2019 'BB-';
--USD400 million in senior notes due 2020 'BB-'.
Corporacion GEO, S.A. de C.V.(GEO)
--Foreign Currency Issuer Default Rating (IDR) 'BB-';
--Local Currency IDR 'BB-';
--National Long-term rating 'A-(Mex)';
--USD54 million senior notes due 2014 'BB-';
--USD250 million senior notes due 2020 'BB-';
--USD400 million senior notes due 2022 'BB-';
--MXN400 million Certificados Bursatiles due 2014 'A-(Mex)'.
--National Long-term rating 'BBB(cl)';
--Unsecured Notes (Linea de bonos No 726), USD16.5 million due in 2022 'BBB(cl)';
These rating actions do not include smaller homebuilders Corpovael, S.A. de C.V.(Corpovael) and Inmobiliaria Ruba S.A. de C.V. (Ruba) rated in the national scale 'BBB+(mex)' with a Stable Outlook and 'A-(mex)'; Stable Outlook, respectively.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
Corporate Rating Methodology
2013 Outlook: Mexican Homebuilders