Brazilian Gafisa's Public Offering Raising $0.5B

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Gafisa, GFA, is one of the darlings of the Brazilian stock market, having skyrocketed 198% since Jan 2009.

The table above shows the return of the Brazilian ADRS, taken from our live tracking of all latin-american ADRs site.

The company is working a new share offering that is being well received by analysts who follow the construction sector. They see in operation the a way for the company to reduce its leverage and ensure growth in a promising scenario for the Brazilian housing market.

The company expects to raise R$900M to $1.1B, USD $0.47B to USd$0.58B from its primary offering, which should be completed in the first quarter, said chief financial officer, Alceu Duilio Calciolari on a conference call with analysts on Tuesday.

35% of the funds will be used for the purchase of land, 25% for working capital, 20% for new projects, and 20% for partnerships and strategic acquisitions. "A stock offering will give us the opportunity to comfortably fund our business objectives in the coming years, while enhancing our current capital structure," said Gafisa's, Wilson Amaral. Last year, Gafisa expressed in June its desire to issue new shares to strengthen its cash up to R$700M. In July, however, the company withdrew its offer due to market conditions at the time. In December, the company announced the issuance of R$600M in debentures.

Several other builders eventually issued shares in 2009, including Cyrela Brazil Realty, Rossi Residencial and PDG Realty. That left Gafisa at a level lower than its competitors. Gafisa in December had net debt and obligations of investors with R$2B. "The leverage of the company is very high, and this can only be equalized if there is a capture like this," said analyst Christian Hees, Brascan brokerage firm. "There is a great need for new resources, and expectations for the sector are very good. Gafisa can no longer be left behind," Hees said.

According to Brava Investments, Gafisa chose to announce the offering of shares only after the quarterly earnings release and with already consolidated figures for the Tenda Construction acqusiition, so that the market had access to updated information. "The time (for a stock offering) is not the best, but the Bovespa at 64,000 points is at a good level," said a member of the staff analysis of Brava, referring to the recent turbulence in global equity markets.

The effective value per share in the provision of Gafisa will be fixed according to market conditions during the pricing. According to the chief financial officer of Gafisa, the targetted company releases of between R$4B to $5B in 2010 is feasible even if the stock offering is not successful. However, according to Brascan, the company already assumes that it will succeed in the stock offering.