By Tatiana Bautzer and Guillermo Parra-Bernal
SAO PAULO, Aug 23 (Reuters) - Brazilian homebuilder Gafisa SA is inclined toward listing subsidiary Construtora Tenda SA rather than finding a strategic partner, on the notion that an initial public offering could fetch more for the unit and accelerate efforts to cut debt, three people familiar with the plans said.
Listing Tenda on the São Paulo Stock Exchange would allow investors to take advantage of a three-year turnaround that has seen the low-income homebuilder return to a profit and deliver return on equity closely trailing that of larger segment rival MRV Engenharia SA, two sources said.
The sources said a Tenda IPO would also be more effective than a spinoff in helping to reduce Gafisa’s debt-to-equity ratio, which nears 80 percent, according to Thomson Reuters data. Gafisa, which had consolidated net debt of 1.45 billion reais ($453 million) at the end of June, has hired Rothschild & Co to advise on potential options for Tenda.
São Paulo-based Gafisa did not have an immediate comment.
The interest in a Tenda IPO, which would be the first for a Brazilian homebuilder since Helbor Empreendimentos SA’s in April 2010, comes as investors see signs a four-year crisis in the industry is near a bottom. An index grouping construction companies trading in São Paulo is up 45 percent this year, bucking three straight years of declines.
At current prices, Tenda’s value could be around 850 million reais ($266 million), about 10 percent more than Gafisa’s market value, according to analysts. Both companies already have independent management and operate in different markets, increasing the allure of a Tenda spinoff, the people said.
Talks to sell a stake in Tenda to strategic investors over the past couple of years have failed, partly because it is difficult to separate Tenda’s debt from Gafisa’s amid a rout in shares and plunging cash generation, the three sources said. None of them declined to name bidders, only adding that most were firms specializing in real estate investments.
Two of the sources said the goal of an IPO would be to help Tenda fetch a price above the 0.8 times book value, allowing investors to profit with an expected convergence toward MRV Engenharia’s 1.1 times book value. MRV Engenharia is Latin America’s largest homebuilder.
Shares of Gafisa dipped 0.4 percent to 2.62 reais. The stock is up 10 percent this year.
Such a move would underscore optimism among investors that Brazil’s subsidized housing will remain more resilient than higher-income segments to fallout from the harshest recession in eight decades, slowing mortgage loan disbursements and persistently high cost inflation for homebuilders.
Since Tenda began to focus on the second- and third-income ranges, the two highest, in the “My House My Life” home financing program, delinquencies and cancellations have come down. Tenda appears to have cleaned up bad debt receivables from past projects and most contingency provisions have ended, Bradesco BBI analysts wrote in a note last week.
$1 = 3.1974 Brazilian reais Editing by Jeffrey Benkoe