Debt levels of brazil´s mainstream property developers

A recent report produced by Fernando Ferreira de Araujo Souza – research specialist and engineer at the Real Estate Research Group at the Polytechnic School, University of São Paulo – pointed to the fact that Brazilian construction companies listed on the BM&F Bovespa have reached unprecedented levels of debt since being established on the capital markets; whilst they have grown eight in terms of gross operating revenue and six times in equity balances since 2006, the average debt burden has multiplied 21 times.

In 2006, the aggregate net equity levels of companies totaled R$ 5.9 billion with 54 percent of investment being financed from the companies own capital stocks and 46 percent from third parties. Via debentures and finance using the Housing Finance System (Sistema Financeiro de Habitação, SFH), the companies ended the year with a debt burden of R$ 1.4 billion – representing gross and liquid debt levels of 25 percent and -15 percent of net equity respectively (the companies had sufficient cash resources for payment of the debt).

In the 12 months up to quarter 3 in 2011, net equity levels had grown to R$ 36 billion with the percentage of own capital resources falling to 30 percent and those of third parties growing to 61 percent. The gross and liquid debt levels as a proportion of net equity grew to 87 percent and 59 percent respectively – 3.7 times more than the capacity to generate operational cash flow as measured under the ebitda concept (earnings before interest, taxes, depreciation and amortisation). These statistics essentially mean that it would take almost four years of cash flow generation to pay debts owed. 

Source: BrazilInvestmentGuide.com