Bloomberg News

Worst Performer Salfacorp Says Debt Concern Is Groundless

December 06, 2012

Salfacorp SA (SALFACOR), the worst-performing Chilean construction stock this year, will generate enough cash to make all debt payments without selling assets or refinancing, Chief Executive Officer Francisco Garces said.

“Investors and analysts don’t seem to understand our real- estate business,” Garces said today in an interview in Santiago. “Our short-term debt payments are covered entirely by an inventory of homes of exactly the same amount.”

Salfacorp’s shares have tumbled 24 percent this year amid concern about short-term debt levels that surged to a record in the third quarter. Competitor Besalco SA (BESALCO) gained 15 percent while real-estate developer Paz Corp SA (PAZ) increased 44 percent as data from Chile’s construction chamber showed construction expanded at an average 10 percent per month since January 2011.

The cyclical nature of Salfacorp’s real-estate unit, Inmobiliaria Aconcagua, requires frequent short-term borrowing to finance home construction, Garces said. The company repays the debt when projects are completed and final ownership contracts are signed, which will lead to “better” debt ratios starting next year, he said.

“Our Ebitda from real-estate sales will be huge in the fourth quarter,” Garces said, referring to earnings before interest, taxes, depreciation and amortization.

Profit Outlook

Profit from Salfacorp’s real-estate business will improve the company’s ratio of Ebitda over interest expense to more than four times in the fourth quarter, Garces said. The company ended the third quarter with a ratio of 3.1 times, according to a Nov. 21 regulatory filing. The company has agreed with bondholders to maintain a ratio above three times, Garces said.

Banco Santander SA (SAN) cut its recommendation for Salfacorp yesterday to the equivalent of sell, citing debt level concern.

The company’s current liabilities --including debt, accounts payable and other items that must be met within 12 months-- reached a record 437 billion pesos ($916 million) in the third quarter, according to data compiled by Bloomberg. Of that amount, 219 billion pesos correspond to short-term debt.

Salfacorp’s engineering unit, ICSA, and Aconcagua will transfer cash and secure new bank loans to cover a $96 million bond payment due in May by the parent unit, Garces said. Salfacorp will also consider restructuring its remaining long- term debt after that, he said.

To contact the reporter on this story: Eduardo Thomson in Santiago at ethomson1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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