LatinFinance - September/October 2013 - 52

its executives are encouraged by the new
investment climate.
the firm plans to raise its capital spending in mexico to $200 million this year from
a previously announced $135 million, and
could even consider going to the capital
markets to fund investment. “Due to these
reforms and the positive image the new
government has shown about mexico and
the confidence in the new administration,
we are seen as a more attractive country
for foreign investment,” says José Zozaya,
KcSm’s president.
the company is considering investing
in rail transportation: as the energy sector
is reforms take place, demand for oil, fuels
and petrochemicals will likely rise — and so
too the need to transport such products.
Zozaya expects to see volumes rise as
the private investment push continues. “if
[mexico] finds more natural gas or oil then
it’s very possible that Kansas city Southern
would put more investment into rail lines,
cars and locomotives that bring in sand,”
he says, adding that they could also bring in
pipes for drilling.
Small print
others are also keen to see the final details.
canadian trains and planes manufacturer
Bombardier first invested in mexico in 1992.
its local subsidiary wants to be active in
participating in bids for the projects announced as part of the 2013 to 2018 infrastructure plans, and is eagerly waiting for
details about those expected to be on offer,
says alfredo nolasco, chief country representative for mexico.
the firm will also be watching for fair
competition across the board, so that all
involved can compete on equal footing,
he adds.
Dallas Parker, Houston-based partner at
law firm mayer Brown, says he is “very excited” about mexico’s prospects. “it’s been
a good economy for a while, but the seriousness with which reform is being pursued is
very encouraging,” he says.
others agree. Delia Paredes mier, executive director of economic analysis at
Banorte, points out that six years is a short
period such an ambitious reform program
to be rolled out, but says she is encouraged
that, for infrastructure, priority projects
have already been identified.
this plan is bolder than attempts by
previous administrations, says Paredes mier
— but also more likely to succeed.
She adds: “this time around they are going to get some of the things done.” LF

52 l atinfina nce.com - September/October 2013

MEXICO
DEBT

As Mexico’s homebuilders wrangle over restructuring agreements with bondholders, the blame game is
fierce. By Mariana Santibáñez

Long way home
in July, mexico’s largest homebuilder Desarrolladora Homex skipped a payment on its
9.5% 2019 bond.
Homex had worked to avert default in
the previous months. in april, it sold its
stake in two prisons to carlos Slim’s iDeal
and Grupo financiero inbursa for four
billion pesos. it also took out a bridge loan
under a new government loan guarantee
program.
But that wasn’t enough.
after missing the interest payment, the
company faced a series of ratings downgrades, as well as a lawsuit by Barclays and
credit Suisse for $70 million for terminating
derivative contracts.
the builder hired JPmorgan to advise it
on its strategic options.
Shortly thereafter, two more homebuilders, corporación Geo and Desarrollos
Urbanos (Urbi), joined Homex in a string of
defaults as they struggled with heavy debt
loads and a changing industry.
the sensitivity of the issue — the three
are still discussing restructuring proceedings — means few are willing to talk about
the industry’s precarious predicament.
mexico’s development ministry, SeDatU,
and government mortgage agency Sociedad
Hipotecaria federal were unavailable for
comment. and a creditors’ committee holding Urbi and Geo bonds, which includes
Pimco and london-based firms ashmore
Group and BlueBay asset management,
also declined a request for an interview.
the problems facing the industry
stemmed from changes in government
housing policy, which hit cash flow and
liquidity, Homex says in a written response
to questions from LatinFinance. the government switched from promoting freestanding homes to apartment construction,
which demands larger amounts of working
capital.
the changes led to a dip in sales, the

company says. “in short, companies that
have been affected are those like Homex
that have changed their business models to
align with housing policies,” Homex says.
the company blames the quick change
in housing policy, and a slow realignment
of old housing and support programs.
Homex quickly migrated to building
apartments: such construction constituted
5% of its output in 2010 but grew to 55%
in 2013. Despite its troubles, it prides itself
on being the country’s largest apartment
builder.
Yet financially, Homex, along with Geo
and Urbi, did not adapt as quickly as they
needed to.
“When the mexican government started
promoting apartment housing in cities, all
the players were making changes in capex
plans and how to manage operations,”
says José Vertiz, a director in fitch’s latin
america group.
“these three companies didn’t make the
right decisions on how to adjust to these
changes resulting in this trend of free cash
flow deterioration.”
effectively, the three had increased their
short-term debt relative to cash, and had
trouble terming out their borrowing in the
bond market.
“there was a greater emphasis on

josé vertiz, fitch

“It Is possIble to
hAve A bAlAnced
operAtIon And hAve
the rIght tArget
And MAnAge cApItAl
needs on A regulAr
bAsIs”

http://www.LATINFINANCE.COM

LatinFinance - September/October 2013

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