RPT-UPDATE 2-Spain's Sacyr puts property unit up for sale to cut debt

Tue Oct 1, 2013 8:00am EDT

* Vallehermoso put up for sale

* Hedge funds mooted as possible buyers

* Shares in Spanish builders outperform (Adds details, fund manager quote, background)

By Sonya Dowsett and Jose Elías Rodríguez

MADRID, Oct 1 (Reuters) - Construction company Sacyr put its property division Vallehermoso on the block on Tuesday, the latest move by a Spanish builder to offload assets to cut debt dating from the country's burst housing bubble.

Sacyr is likely to sell Vallehermoso, whose assets mostly consist of undeveloped land for residential use, for a symbolic sum to rid itself of the unit's 1.2 billion euros ($1.6 billion) of debt that is weighing on its balance sheet, analysts said.

Sacyr, which has changed its stock market ticker to dock a reference to Vallehermoso, noted on Tuesday it would be able to remove the unit's debt from its balance sheet by formally announcing a decision to sell.

"This will have a positive impact on our results," a company spokesman said. Shares in the firm rose more than 4 percent.

Sacyr had a debt load of 8 billion euros at end-July, with six times more loans than equity, one of the highest ratios of indebtedness amongst industry peers.

Spain's builders have been selling assets and seeking business abroad in order to counter a downturn at home and pay down debt built up during a near-decade construction boom which ended five years ago.

Sacyr merged with Spanish housing firm Vallehermoso in 2003, when Spain's debt-fuelled construction boom was in full swing, to become Sacyr Vallehermoso. The unit is highly exposed to Spain's housing market with around three-quarters of its assets in undeveloped land and the rest in residential developments.

Undeveloped land is a particularly hard sell in Spain. While official data shows land prices have fallen by nearly half since their peak in 2007, some real estate experts believe they have dropped at least 70 percent.

SHARE CORRECTION DUE?

The most likely buyers for Vallehermoso are hedge funds currently moving into Spain to prepare bids for the property management units of Spanish banks in the hope of breaking into a market which has yet to yield many housing bargains.

Santander, Bankia and Caixabank are amongst banks who have sold or are looking to sell or contract out property units. Funds could use these divisions as platforms from which to buy other real estate assets.

Sacyr said in June it had talked to funds and companies over the potential sale of the unit. The company said on Tuesday it had received interest in the business but no deal had yet been struck, without giving details on price or potential buyers.

Shares in builders like Sacyr and FCC have jumped in recent months as investors have welcomed management moves to get their balance sheets in order. Hedge funds are also closing off short positions as companies' prospects improve.

Sacyr's stock has more than doubled this year to date while both Sacyr and FCC have greatly outperformed the Spanish blue-chip index in the year so far.

Whereas Spanish builders have won contracts abroad, such as Sacyr widening the Panama Canal in Latin America and constructing toll roads in Chile, improvements in the outlook for the Spanish economy have also given the stocks a boost.

Spain is expected to return to economic growth this quarter after two years of recession.

However, one fund manager who took profits in Sacyr and FCC a couple of weeks ago, said he thought the optimism was overdone on the effects of a pickup in the Spanish economy for builders.

"I think the worst is probably behind us, but the recovery will have its ups and downs and we're not going to see the level of growth that will bring a jump in building contracts and earning levels for some time to come," said Jose Lizan of Auriga Securities, with around 300 million euros under management.

($1 = 0.7387 euros) (Additional reporting by Sarah Morris)

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