Spanish companies in the struggling real estate sector are trying to escape the shackles of their domestic country
Actividades de Construction y Servicios (ACS), which had the defunct financial institution Bankia as one of its major investors, is rumoured to be looking for a buyer for its own headquarters. It has already pledged €900m worth of shares in German builder Hotchief, which it took over last year, as collateral for an earlier loan in July.
In another recent deal in South America, it sold off its Brazilian high-voltage electricity transmission assets to the value of 1,86 bn reals ($938.2m), to China’s State Grid Corporation. Yet ACS is still one of the worst-performing companies in Madrid’s blue-chip IBEX. Its stock lost 43 percent of value this year.
Another of Spain’s biggest construction companies, FCC, has made the decision to expand. It is building its new headquarters in the City of London, after its UK turnover increased by 15.5 percent in Q1 of 2012. It is also part of a consortium bidding for the £600m Mersey gateway scheme. Recent projects include: the 2012 Media Centre that it is just finishing work on, and the two Crossrail sections whose contract it acquired via its subsidiary, Alpine BeMo Tunnelling.
FCC’s results for the first quarter of 2012 show that more than half its total revenues of €2billion came from outside Spain. The European country where it has the largest stake is Austria, through Alpine, the country’s second largest construction group, (which accounts for 41.4 percent of its international sales). The next largest is Germany, with 18.9 percent. FCC probably emerged in a stronger position, because it was not linked to Spain’s fourth-largest bank Bankia. Bankia was bailed out by the government for €19bn late in May.
One of the reforms outgoing President Jose Luis Rodriguez Zapatero insisted on in return were a number of “soft mergers” between Bankia and its local regional branches, or ‘caja’. The Caja Madrid was one of the major culprits in the over-lending to mortgage customers which created the real estate crisis. In 2006, after its mortgage book expanded by 25 percent, the Caja Madrid’s own head of capital markets is quoted as saying, “We don’t want to grow that fast. We are a savings bank.”
Caja Madrid received a refinancing loan from the Fondo de Reestructuración Ordenada Bancaria (FROB) for €4.600m earlier this year. Its former director general Rodrigo Rato was then replaced by Sanchez Barcoj. The government has undergone some criticism for the comfortable pensions many of the former caja heads have been retired with – one of the accusations which provoked the general strike in March and the ‘May Day’ protests.
Thousands of protestors signed a petition against banks’ continuing ability to repossess the homes of defaulting mortgage customers, and then to sell them without cancelling their debt. Recent reforms have enforced a ceiling on interest rates for mortgage repayments, for those homeowners struggling to meet them. Yet conversely, the government and Bank of Spain have actively promoted the use of online property auctions to sell repossessed houses.
It remains a difficult balancing act for the Spanish government. Initially its reaction to the mortgage crisis, and general economic restructuring in 2008, seemed a modest success: the budget deficit reduced from 11.1 percent in 2009, to 9.3 percent in 2010. Yet its economy shrank 0.4 percent in the first quarter of 2012, and Prime Minister Mariano Rajoy seems unlikely to want to reduce banks’ ability to demand collateral for their loans.
One thing is certain. The number of Spanish real estate developers available for those looking to invest in property on the Costa del Sol is in decline. Metrovacesa and Colonial, two major, over-geared, developers forced into bank control by the crisis, saw falls in their stock this year by 43.3 percent and 66.84 percent respectively. A third, Martinsa-Fadesa, went into administration.
A smaller company Astroc was bought out by its rival Afirma after it lost 70 percent of its share value in a week, and was able to take advantage of a restructural plan which granted it €1.5bn in short and long-term lending. Because it postponed its first amortisation until the end of 2010, it paid just 10 percent of its debt in 2011. However, 20 percent is due in 2012 and it remains to be seen whether the developer can meet the 55 percent of its obligations due in 2013.
It is unlikely that Spanish homeowners are in the same state as the US sub-prime market, where the total that homeowners owe on mortgage repayments outweighs the total value of their houses. Yet the Spanish government is probably right to be cautious before allowing an unrestricted timetable of repayments for defaulters, whether a listed company or the owner of a semi-detached villa. Limitless cheap credit has not yet solved the eurozone crisis.