Gafisa Turns to Debentures for Liquidity

Brazilian real estate developer Gafisa plans to issue BRL250m in local debentures in the coming weeks. The move is an attempt to shore up its working capital needs as it looks to execute a large pipeline of projects, including ones by its low-income subsidiary Tenda. “The idea here is to have a stronger cash position and more financial flexibility,” Duilio Calciolari, Gafisa’s CFO, tells LatinFinance. “This is good that they can access the debenture market because they really needed the cash,” says one buyside real estate analyst, who notes the local bond market is a good option for the company now. “This is basically buying them time,” he adds. Gafisa plans to raise the BRL250m across 2 tranches: a BRL100m one that will pay CDI plus 325bp and a second BRL150m one that will pay and 200bp over the CDI, says Calciolari. The average tenor of the funds is 2 years and the average rate of the entire issue will be around CDI plus 250bp, he says. Banco Votorantim will lead the trade. Gafisa’s original plan was to raise the funds – up to BRL700m worth – through an equity follow-on via JPMorgan and Itau, which would have both reduced leverage and boosted its cash position. But following the deal’s announcement, the stock traded down to around BRL15.00, which led Gafisa to shelve the sale. It will likely still consider a sale if its valuation improves, but for now, it has turned to the local market to resolve the working capital issue. “We believe this announcement is slightly positive for the stock as it is likely to push further down [the road] a follow-on offer,” says Bank of America Merrill Lynch analyst Carlos Peyrelongue in a note to investor clients. “We continue to believe that unless the stock is above BRL27 or BRL28, [Gafisa] will not proceed with a follow-on offer. We reaffirm our BUY rating on the stock.”