Mexican builder GEO S.A. de C.V. is in the market with the country's first securitization of construction receivables. The P133 million ($14 million) is the first offering from a P450 million program managed by Nacional Financiera, S.N.C. (Nafin).

The deal was rated AA-plus by Fitch IBCA, AA by Duff & Phelps Credit Rating Co. and AA-minus by Standard & Poor's.

The underlying assets are building contracts for low-income housing commissioned to GEO's subsidiaries by the Fondo Nacional para la Vivienda de los Trabajadores (Infonavit) and the Fondo de Operacion y Financiamiento Bancario a la Vivienda (Fovi). Both are state-sponsored organizations designed to provide housing for the low-income sectors.

"The demand for housing in the low-income sectors is so high that Fovi and Infonavit are over their heads," explained Rosario Buendia, managing director of structured finance at Standard & Poor's. "So they decided to access the capital markets through securitization as a way to diversify funding."

The transaction comes in the wake of a government regulation that grants tax breaks for paper that features maturities of three years and longer. "This is a very positive incentive for the local market," said Buendia. "It stimulates the issuance of notes with longer tenors and provides more choices for investors."

Undoubtedly, the deal is good news for the housing sector and for the local asset-backed market. "Securitization is still a relatively new concept in Mexico, but things are changing," said Eugenio Lopez, at Fitch IBCA in Mexico. "The market is becoming more comfortable with this instrument and institutional investors have an appetite for low-risk, high-rated paper. I believe that the conjunction of these elements will bring more deals to the market."

However, sources point out that since the offering does not involve real assets but rather building projects to be executed by GEO, it involves considerable construction risk.

GEO has 18 subsidiaries in Mexico, Chile and the U.S. It actively participates in all aspects of construction, including promotion, design and sales. The corporation has been in existence for over 25 years and has been responsible for the completion of 100,000 houses.

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