GRUPO SANCHEZ is filing for bankruptcy

[concernedinvestor]

As I understand it the bank guarantee is not a "bank guarantee" but an insurance policy as the funds were not kept in escrow. Therefore, the terms of the insurance policy should be scrutinised. I have reason to believe that the policy may not actually protect investors.

As for GS filing for "suspensión de pagos" they are effectively earning their cashflow some time to recover as they automatically cancel any payments due and can concentrate on selling assets / recuperating monies owed so that they can clear past debts and move on. So it is actually positive for them and negative for any company that they owe money to as it will severely delay paying of invoices. It is not unknown for companies to come back from this but you have to ask yourself would any clients buy at Grand Natal Golf now, knowing that the developer is in this situation? Also, would agents actually sell it in the future with the knowledge that GS are probably not going to be able to pay outstanding commissions due them at the moment?

The entire situation has arisen IMHO due to developers over stretching themselves with developments that are beyond their capacity... I mean to try to sell 20,000 + units when in your entire history you haven´t built 1/5 of those units even in Spain where the developer is from sounds a little over optimistic. And they are not the only Spanish developer guilty of doing that in Brazil..... although they are the FIRST to pay the price for it.

As I understand it (and from the local press) GS were a LONG way from having all of the pertinent licences (they had the initial Licencia Previa but not the Alvará which allows sales to take place LEGALLY, nor did they have the Licencia de Instalaciones or Constitución and by all accounts did not even have 100% land ownership). Therefore, they could not generate the income from sales as they could not proceed to sign full purchase contracts as the licensing was not in place to allow them to do so.

It is a great shame that such actions could tarnish investors / clients impressions of Brazil and several of the initial "landmark" developments are looking a bit shaky at the moment. Hopefully the industry will learn and move on from this. I also think that the agents should be honest and take some of the blame for not doing very thorough due diligence in the first place.

[RalphJ]

Originally Posted by concernedinvestor

As I understand it the bank guarantee is not a "bank guarantee" but an insurance policy as the funds were not kept in escrow. Therefore, the terms of the insurance policy should be scrutinised. I have reason to believe that the policy may not actually protect investors.

As for GS filing for "suspensión de pagos" they are effectively earning their cashflow some time to recover as they automatically cancel any payments due and can concentrate on selling assets / recuperating monies owed so that they can clear past debts and move on. So it is actually positive for them and negative for any company that they owe money to as it will severely delay paying of invoices. It is not unknown for companies to come back from this but you have to ask yourself would any clients buy at Grand Natal Golf now, knowing that the developer is in this situation? Also, would agents actually sell it in the future with the knowledge that GS are probably not going to be able to pay outstanding commissions due them at the moment?

The entire situation has arisen IMHO due to developers over stretching themselves with developments that are beyond their capacity... I mean to try to sell 20,000 + units when in your entire history you haven´t built 1/5 of those units even in Spain where the developer is from sounds a little over optimistic. And they are not the only Spanish developer guilty of doing that in Brazil..... although they are the FIRST to pay the price for it.

As I understand it (and from the local press) GS were a LONG way from having all of the pertinent licences (they had the initial Licencia Previa but not the Alvará which allows sales to take place LEGALLY, nor did they have the Licencia de Instalaciones or Constitución and by all accounts did not even have 100% land ownership). Therefore, they could not generate the income from sales as they could not proceed to sign full purchase contracts as the licensing was not in place to allow them to do so.

It is a great shame that such actions could tarnish investors / clients impressions of Brazil and several of the initial "landmark" developments are looking a bit shaky at the moment. Hopefully the industry will learn and move on from this. I also think that the agents should be honest and take some of the blame for not doing very thorough due diligence in the first place.

You hit the nail on the head and couldn't agree more than agents need to take a LOT of responsibility for selling something that didn't even have the "alvara", which as you correctly stated, is NECESSARY to sell LEGALLY!

Unfortunately these types of problems has done and continues to do incredible damage to the image of Brazil and being someone that has a personal, as well as financial, stake in Brazil I have to say that it's more than upsetting.

People need to be more cautious and "don't believe all the hype" that many count on in their haste to make a quick buck.

[JMBroad]

Totally agree - unless a development has all the necessary licenses, it makes no sense to sell it or take reservations on it.

[michaelbush]

Originally Posted by JMBroad

Totally agree - unless a development has all the necessary licenses, it makes no sense to sell it or take reservations on it.

Unfortunately Grupo Sanchez is only one of many overseas developers who invest in the land, and produce the project with the expectation of getting the licences. They cannot legally sell in Brazil until they have the licences but many start the sales campaign in Europe taking "reservation" deposits. They cannot issue a legal contract at this stage.Then with all the delays getting all the permissions, people lose interest, the company loses credibility and then come the problems for investors to get their deposit returned. If you want to be certain use a reputable agent in Europe who does check out before offering developments, or better still visit Brasil yourself, and importantly do not believe in the virtual reality images on the internet.

[Golfingworld]

Right, I am not an Agent, Developer or Seller of property either in Brazil or anywhere else...firstly congrats "concerned" as you piece is well put and seems very credible. This whole issue seems to me to be a salutory warning to anyone thinking of "speculating" in the off plan/overseas property market either in Brazil or elsewhere. The basic problem lies in the concept of pre-selling something that isnt built or is nowhere near built on the basis that when complete it will be worth a lot more. In the UK this never happened before, you went to look at a house and you bought it, simple as that and to my mind this is the way people should invest overseas too. The world property market is in trouble (only today UBS Chairman left under a cloud due to sub prime issues) and there can be no valid reason why prices in overseas property will rise anywhere for at least 3/5 years....there are no economic fundamentals to justify this rise...so it is a buyers market and offer at least -25% of the asking price on finished properties and see what reaction you get...simple as that!

[robh]

I think this is from the OPP newsletter.

GRUPO SANCHEZ SUSPENDS ITS DEBT PAYMENTS
Spain, debt, developer, Grupo Sanchez, Brazil

Spanish developer Grupo Sanchez has applied to courts in Barcelona for a ‘concurso voluntario’, or judicial help to manage its debt, as the credit crunch makes raising funding to develop its projects harder to come by.

The company told OPP that although it currently has approximately €95.2million worth of debt, €70.4million of this is tied up in bank loans for Spanish developments and is secured with land and construction guarantees in Caja Madrid and Caixa Catalunya.

Commercial and marketing director Charles Garcia explained that, despite rumours sweeping internet forums, buyers’ deposits on its flagship resort in Natal, Brazil were completely safe as they were backed by a bank guarantee.

“Natal is not affected,” he said. “Just the Spanish developments we are involved with. The Brazilian project is still completely alive. We have planning permission and are close to starting construction. Brazilian banks have been helping to finance the project and Grupo Sanchez likes to keep the Brazilian and Spanish sides of the businesses separate.”

The Elegance Natal Golf Development, bought into by Brazillian footballer Ronaldo and Hollywood actor Antonio Banderas is the company’s biggest project, attracting many international buyers to invest off-plan. InSpain, the company develops property on the Costa del Sol and the Costa Blanca.

Garcia added that due to a “temporary cash flow problem” Grupo Sanchez’s main project in Malaga, Elegance Doña Julia, has been suspended for the short-term until it can renegotiate its debt with local financiers.

“Things are blocked on certain projects. We are negotiating with the banks that provided the finance for the developments to go forward. For Doña Julia, phase one is complete but we will not release it until we have secured funding from the bank for phase two and they give us the green light.

"In Spain it is very tough at the moment and many developers are facing liquidity problems. A newspaper report said recently that of the €16billion in developer debt currently being re-negotiated in Spain, Colonial, Habitat and Martinsa Fadesa are re-negotiating €13billion worth of it. Our amount is small in comparison. At the end of the day, all deposits for Grupo Sanchez developments in Spain and Brazil are protected by lawyers and the buyers’ money is completely safe.”

[MarikaAR]

How reliable is this assurance?

[robh]

Originally Posted by MarikaAR

How reliable is this assurance?

Hi MarikaAR,

I cant tell you if this is the total story, it was run in an real estate industry newsletter from the OPP and they seem pretty reliable.

I don't deal with GS at all, so I am just passing this on for people that have bought from them.

Sorry I couldn't be of any more help.

Regards,
Rob.

[RalphJ]

Originally Posted by robh

I think this is from the OPP newsletter.

GRUPO SANCHEZ SUSPENDS ITS DEBT PAYMENTS
Spain, debt, developer, Grupo Sanchez, Brazil

Spanish developer Grupo Sanchez has applied to courts in Barcelona for a ‘concurso voluntario’, or judicial help to manage its debt, as the credit crunch makes raising funding to develop its projects harder to come by.

The company told OPP that although it currently has approximately €95.2million worth of debt, €70.4million of this is tied up in bank loans for Spanish developments and is secured with land and construction guarantees in Caja Madrid and Caixa Catalunya.

Commercial and marketing director Charles Garcia explained that, despite rumours sweeping internet forums, buyers’ deposits on its flagship resort in Natal, Brazil were completely safe as they were backed by a bank guarantee.

“Natal is not affected,” he said. “Just the Spanish developments we are involved with. The Brazilian project is still completely alive. We have planning permission and are close to starting construction. Brazilian banks have been helping to finance the project and Grupo Sanchez likes to keep the Brazilian and Spanish sides of the businesses separate.”

The Elegance Natal Golf Development, bought into by Brazillian footballer Ronaldo and Hollywood actor Antonio Banderas is the company’s biggest project, attracting many international buyers to invest off-plan. InSpain, the company develops property on the Costa del Sol and the Costa Blanca.

Garcia added that due to a “temporary cash flow problem” Grupo Sanchez’s main project in Malaga, Elegance Doña Julia, has been suspended for the short-term until it can renegotiate its debt with local financiers.

“Things are blocked on certain projects. We are negotiating with the banks that provided the finance for the developments to go forward. For Doña Julia, phase one is complete but we will not release it until we have secured funding from the bank for phase two and they give us the green light.

"In Spain it is very tough at the moment and many developers are facing liquidity problems. A newspaper report said recently that of the €16billion in developer debt currently being re-negotiated in Spain, Colonial, Habitat and Martinsa Fadesa are re-negotiating €13billion worth of it. Our amount is small in comparison. At the end of the day, all deposits for Grupo Sanchez developments in Spain and Brazil are protected by lawyers and the buyers’ money is completely safe.”

From what I understand they don't have full planning permission at this moment.

I wonder how long it will take people to receive refunds once they request them?

[JMBroad]

Regardless, according to a statement in the local press by their Brazilian partner, the land and the licenses aren't in their name and G Sanchez are the marketing agency hired to promote the development, not the builder or the developer. (I linked the article a few pages back I think)