(peHUB) May 29, 2012 – Brazilian buyout firm Vinci Partners presented a plan to raise about 800 million reais ($405 million) for PDG Realty, up to 81 percent of which could come from the firm’s investment funds. PDG’s board and shareholders still need to review the proposal.

Shares of PDG Realty, Brazil’s biggest homebuilder, jumped on Monday after the local private-equity firm offered to shore up the company’s balance sheet as it confronts tighter credit and rising debt levels.

The prospect of fresh capital comes as the homebuilder struggles with cost overruns and project delays that have hurt earnings and diminished hopes of reducing debt levels this year.

Vinci Partners said its proposal aimed to “strengthen the capital structure of the company in order to face a shortage of credit to the sector” and help with the “payment of onerous debts which currently affect the results of the company.”

PDG shares led gains on Brazil’s Bovespa stock index , rising 7.5 percent on Monday to 3.90 reais and rallying 25 percent since Wednesday, when they hit a three-year low.

PDG’s rivals, which have also suffered runaway construction costs after years of poorly controlled growth, rose far more than the Bovespa’s 2 percent gain, bolstered by evidence of sustained investor interest in Brazil’s real estate industry.

Cyrela Brazil Realty, the country’s No. 2 homebuilder, rose 3.8 percent and Rossi Residencial gained 6.4 percent.

“The news is livening up a sector that had fallen quite a bit and was looking very undervalued,” said Luis Gustavo Pereira, a strategist at Futura Corretora. “I still don’t think this will turn around this year’s rout, but we can see investors are looking for buying opportunities in the industry.”

A fifth of PDG’s Stock
Under the proposal, Vinci Partners, a private equity firm run by former partners of investment bank BTG Pactual , could hold as much as 21 percent of PDG’s equity within four years, according to Reuters calculations.

Vinci Partners proposed the company raise 799.98 million reais through the sale of warrants entitling each holder to one new share and one convertible debenture, according to a securities filing by PDG on Monday.

The capitalization’s price per share of 4.01 reais would offer an 11.4 percent premium over Friday’s closing share price, according to Vinci Partners. The debentures acquired under the plan could be converted after four years into one additional new share for at least 6 reais per share.

The firm said it would plan to contribute between 54.8 percent and 81.4 percent of the fresh capital under the plan and refrain from trading the new shares it acquired for two years.

PDG said in the filing that “preemptive rights of the shareholders of the company to subscribe the warrants shall be respected in any event.”

PDG’s net debt rose to 5.1 billion reais at the end of March from 3.2 billion reais a year earlier, rising to 55.7 percent of equity from 52.1 percent a year earlier.