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Latin America Investment News on Viva Tropical

Homebuilders in Mexico Tiptoe Around Government Rules

Article Summary:

In early 2011, the main goal of Mexican home builders was a positive free cash flow, but after disappointing results in the third quarter, most have lowered their expectations. It’s all because the Mexican government announced a 70% increase in its subsidy program next year with two new policies aimed at boosting housing developments. These policies have left some of Mexico’s largest construction firms in a lurch. They increased their capital needs in order to focus on these goals, but as a result were not able to generate much revenue.

Photo Credit: America Economia

Original Article Text From America Economia via Google Translate :

Homebuilders in Mexico Face Complex Scenario in 2012

The Mexican construction of housing, while trying to adjust to new government guidelines, will compete in 2012 to attract investors seeking companies with strong cash generation, some analysts doubt that these companies can achieve.

Former stars of the market, builders increased their investments this year to meet new government policies aimed at boosting housing developments with vertical and sustainable infrastructure, which are more onerous.

The Mexican government announced a 70% increase in its subsidy program next year focused mainly on these two segments, creating an attractive market at the expense of higher costs for firms just at a time when investors have their eye on the generation of cash.

Construction companies such as Geo, Homex and Urbi, the largest in the country have had to increase this year capital needs to focus on vertical housing and infrastructure projects, in breach of its cash generation targets.

“There has been a distinct disappointment on the financial discipline of companies,” said Francisco Chavez, an analyst at BBVA Bancomer. “The market’s attention will remain the same next year, seasoned with a premium of risk aversion to the external outlook,” added analyst.

In early 2011, the goals of home builders were a positive free cash flow, but after disappointing results in the third quarter, lowered their expectations.

“Much of the expected growth of the business is related to a market (…) more mature, builders have been preparing to serve niches related to their experience.”Carlos Hermosillo, an analyst at Banorte.

Experts say the lack of cash generation has led to the main building to nearly double its debt in the past two years.

Homex reported in the third quarter, net debt ratio of 2.5 times EBITDA (earnings before interest, taxes, depreciation and amortization) per annum, when this indicator was 1.4 times in the same period in 2009. Meanwhile, Geo raised its rate to 2.4 times net debt / EBITDA in the third quarter, from 1.3 that was in the same period in 2009.

Does greater adjustment? Concerns about the financial performance of the construction have made the Habita-index that groups the actions of the sector issuers listed on the bag has subsided by 60% so far this year.

Last week, the index sank to 241 points, its lowest level since February 2009. And while builders have said that in 2012 their goal is to generate cash, analysts are skeptical.

“We will continue to see moderate growth in the housing, which means it would be difficult to reach the desired cash flow,” said Rogelio Urrutia, an analyst at Santander, which has a hold rating on shares of sector.

Homex said this week it expects sales growth of between 10% to 12% in its housing business next year, against a range of between 12% to 14% which is expected to close in 2011.

The company added that a government contract to build two prisons boost their revenues by between 37% and 39% in 2012, although the project will consume about 5,000 million pesos (U.S. $ 368.6 million) of cash.

“Much of the expected growth of the business is related to a market (…) more mature, builders have been preparing to serve niches related to their experience,” said Carlos Hermosillo, an analyst at Banorte.

Hermosillo, builders could have their turning point in 2012 and so lead to better performance of their titles, with investors looking for value stocks the latest in a market that has suffered from volatility by external factors, such as Mexico.

The industry fundamentals remain attractive, with a housing deficit of about 9 million homes and strong policies to support the sector.

The state agency Infonavit-the largest housing finance in Mexico, expects mortgage loans of 186,000 million pesos (U.S. $ 13,715 million) in 2012, representing an increase of about 15% above target this year.

Link to Original Article:

From America Economia

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