TEXT - Fitch may cut Mexican homebuilders ratings

Fri Feb 22, 2013 10:01am EST

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Feb 22 - 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.
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