Belo Horizonte-based Lider, a luxury real estate developer, has always been a synonym of quality in the Brazilian housing market. The properties developed by the 42-year-old company were more expensive, and it served mainly the wealthy clientele of high-end neighborhoods in several Brazilian cities, but mainly within Belo Horizonte (Brazil’s 3rd largest city).
Few could imagine then that the financial health of the developer were this bad. But it is: the 42-year company’s business owner Carlos Costa Carneiro has just filed for Chapter 11 protection in the Second Business Court of Belo Horizonte, and has 60 days to submit an action plan and find solutions to pay their R$67.5 million in debt. During this period, all actions and measures against Lider will be suspended.
According to the company’s lawyer there are a few options for the company. One is to propose tangible solutions to their creditors and get back to business. Another alternative is a merger or asset sale.
But some still deny the existence of a real estate bubble. The lawyer Kenio Pereira de Souza, an industry expert, is one that explains what is happening. “The market is doing well, sales continue to rise, the problem is that the construction companies exaggerated. They overestimated the market, borrowed heavily, and now they can’t deliver units on time.”
Some background history: the homebuilders are not delivering good financial results. Since 2006, the real estate mortgage market increased seven fold, the volume of project launches soared 310% and the number of financed homes in Brazil is at record highs (more than 1 million units last year alone). But the builders saw their net profits fall by 12% in 2011, while their debt levels rose 68%. In December 2008, the average construction delays were 77 days, and that number rose to 129 in December 2011. In addition, real estate was the sector that had the worst performance on the Bovespa Stock Exchange, taking a hit of 39% in 2011 – far worse than the Bovespa index, which lost 18% last year.
But what about Lider?
The lawyer José Murilo de Carvalho believes that in a short time, the company can overcome its current challenges. “The company faces financial difficulties, but it has tradition in the industry and a history of delivering projects on time.”
Who are the creditors?
The biggest creditors are Construtora Lideranca (with receivables of R$28 million), and the remaining debt is split among suppliers of building materials and financial institutions, like Banco Daycoval, Votorantim, HSBC, and BicBanco and Mercantil.