(Adds details on sale, proceeds throughout in paragraphs 9, 13)
By Guillermo Parra-Bernal
SAO PAULO, Dec 14 (Reuters) - Brazilian homebuilder Gafisa SA agreed on Wednesday to sell a minority stake in subsidiary Construtora Tenda SA after a planned initial public offering of the unit collapsed amid escalating political turmoil in Latin America’s largest economy.
Under terms of the transaction, Gafisa will sell up to 30 percent of Tenda to New York-based Jaguar Growth Partners LLC’s asset management unit at a price of 8.13 reais per share. The deal came hours after Gafisa scrapped a Tenda initial public offering in São Paulo, citing deteriorating market conditions.
The sale to Jaguar values Tenda at 539 million reais ($161 million), or less than one-third what Gafisa sought to fetch if the IPO priced at the top of the suggested price range. Gafisa had put 40 million shares of Tenda up for sale in the IPO at a range between 12.50 reais and 16.50 reais.
Jaguar’s bid for Tenda, which builds low-cost housing, underscores how some foreign funds are using Brazil’s political crisis and recession to beat rivals. Demand for Tenda’s IPO was weighed down as the market grappled with allegations that President Michel Temer is involved in a massive graft scheme as well as social unrest after the passage of deficit-cutting legislation, two people familiar with the deal told Reuters.
Scant firm orders from Brazilian pension funds and other institutional investors could force Tenda to seek alternatives, including giving Gafisa shareholders priority in final allotments of Tenda stock, a private placement or a stake sale, Reuters reported on Monday.
Gary Garrabrant and Thomas McDonald helped found Jaguar three years ago to focus on real estate investments in emerging markets. McDonald recently told Business News Network that Jaguar was actively investing in industries with unsatisfied demand in Brazil from retailing to shopping malls and specialty finance.
Jaguar, Gafisa and Tenda did not have an immediate comment.
Shares of Gafisa rose as much as 4.5 percent to 2.07 reais.
Gafisa plans to use proceeds from the deal to reduce a debt burden that reached 80 percent of equity earlier this year, a person familiar with the company’s strategy said. Under terms, Tenda was valued at about 0.5 times book value, well below the 0.8 times that Gafisa intended with the IPO.
Last week, Gafisa put off the pricing date of Tenda’s IPO by one day, saying talks with investors were taking longer than expected. Several investors balked at Gafisa’s high valuation target for Tenda of at least 1.2 billion reais during the talks, five investors told Reuters in recent days.
“Tenda’s investment case certainly remains an attractive one to investors, but we wonder whether pricing it at the bottom or below would be a smart move,” said Adeodato Volpi Netto, head of Eleven Financial Research in São Paulo.
Traders said bringing in a so-called anchor investor like Jaguar could help facilitate a Tenda listing in the future.
In a separate statement, Gafisa said at least 232 million reais will go into its coffers, noting it could get about 88 million if Jaguar exercises an additional 20 percent allotment of Tenda shares. ($1 = 3.3378 reais) (Additional reporting by Tatiana Bautzer in São Paulo; Editing by David Clarke and Jeffrey Benkoe)