UPDATE 2-Brazil's Gafisa sees fewer launches, Tenda recovery in 2014

Wed Dec 18, 2013 12:03pm EST

By Asher Levine

SAO PAULO Dec 18 (Reuters) - Brazilian homebuilder Gafisa SA plans to rein in new projects and expenses next year as it seeks to cut debt and boost profitability, executives said on Wednesday.

Its Gafisa unit, which builds mid-priced homes, will launch between 1.5 billion reais ($647 million) and 1.7 billion reais worth of new projects next year, while its Tenda unit, aimed at low-income buyers, will begin between 600 million reais and 800 million reais in projects. The estimates are down from about 2.7 billion reais in total this year, executives said at an investor event on Wednesday.

Gafisa shares rose nearly 5 percent to 3.67 reais in early afternoon trading.

Gafisa embarked on a turnaround strategy in October 2011 after a rapid expansion into untried markets led to huge cost overruns, sales cancellations and big quarterly losses. Since then, the company has reduced expenditures and temporarily halted launches in the Tenda unit so it could focus on selling off unprofitable inventory.

Net debt is likely to reach between 55 percent and 65 percent of equity next year, a sharp drop from 126 percent at the end of September, Chief Executive Duilio Calciolari said at the event.

It will use proceeds from Gafisa's sale of a 70 percent stake in its high-end Alphaville unit to repay maturing debt, pay shareholders a one-time dividend and buy back stock.

"We had determined that our leverage had gotten out of our hands due to operational questions, (that it was) not a question of financial discipline," Calciolari said.

He added that expense controls will be strengthened. "Now financial discipline continues but operational control goes along with it."

TENDA "A START-UP NOW"

Tenda resumed launches earlier this year with a new business model under which presales could only be booked if mortgages were able to be transferred to financial institutions.

"We see Tenda as basically a start-up now," said Rodrigo Osmo, head of the unit. "It's at a moment where it needs to prove its business model."

Osmo said most of the old unprofitable projects should be delivered by mid-2014 and that the company's optimal size should be over 1 billion reais in annual launches.

Calciolari said the company expects to reach combined return on capital employed - a gauge of financial efficiency - of between 14 percent and 16 percent at its Gafisa and Tenda units over about three years.

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