Spain's property market restructuring continues

After several years of mind-boggling growth Spain's real estate sector has been plunged into crisis and the country's property firms - many of whom who mushroomed from minnows into giants practically overnight - are desperately trying to restructure to survive.

Colonial, which was the focus of a failed buyout bid by Dubai earlier this year, managed in September to seal a long-awaited binding agreement with its banks to restructure its EUR 7 bn mountain of debt. The group, whose acquisition of peer Riofisa in 2007 was fuelled with debt, said that banks Calyon, EuroHypo, Goldman Sachs and Royal Bank of Scotland have agreed to extend the maturity date on a EUR 6.5 bn financing facility to five years. As a price for the deal with its banks, the Barcelona-based company had to agree to divest many of its crown jewels. Colonial is selling 33% of its majority stake in French unit Société Fonciére Lyonnaise (SFL), its 15% stake in builder Fomentos de Construcciones y Contratas (FCC) as well as its entire shopping centre development unit Riofisa.

Colonial president Juan José Bruguera said he hopes to raise up to €2 bn from the sales, which is just half the amount the company paid for the stakes in 2006 and 2007. The Spanish company will also ask shareholders approval to sell €1.4 bn of convertible bonds. Colonial said that some lenders and shareholders have agreed to purchase EUR 1.3 bn of the notes, which will be convertible into Colonial shares at a fixed price of 25 cents. Colonial lost as much as 76% of its share value over the last 18 months, and has a market capitalisation of about EUR 422 mln.

Colonial is believed to have been thrown a life line by the bank consortium to prevent another big corporate failure in the country after the collapse of Martinsa Fadesa this summer. As a result of the collapse, bad debts at Spanish banks in July saw the sharpest monthly rise in more than five years, data from the Bank of Spain shows.

The outlook for the other giants of the Spanish property sector does not look much brighter. In a recent real estate report titled ‘Wounded to death’ Marta Gómez, an analyst at Banesto Bolsa, said that property valuations have ceased to have meaning for several Spanish real estate firms. Metrovacesa, Reyal Urbis and Sacyr Vallehermoso have been trying to restructure their business this year in an attempt to survive a two-way squeeze between tighter lending conditions and falling property prices.

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The full article appears in the October edition of Property EU Magazine. Click on the link below to subscribe