UPDATE 5-Martinsa Fadesa to file for administration

(Updates and recasts with company filing for administration, adds LONDON dateline, byline)

By Carlos Ruano and Elena Moya

MADRID/LONDON, July 14 (Reuters) - Spanish property company Martinsa Fadesa (MFAD.MC) said it would file for administration after it failed to raise funds and meet debt payments, marking one of the biggest corporate failures in the country's history.

Martinsa Fadesa, with 5.4 billion euros ($8.48 billion) of debt, said the move was triggered by its failure to raise a 150 million euro loan -- a requisite of 4 billion euro refinancing agreement earlier this year.

Martinsa Fadesa had asked its 47 creditor banks for the deadline to be extended until Aug. 7.

"Filing for voluntary administration is the best way to avoid aggravating a crisis situation that could become irreversible and have serious repercussions on creditors and all shareholders' interests," the company said in a regulatory filing.

The company added in a statement that it would focus on selling assets to repay creditors, which include Caja Madrid, La Caixa, Ahorro Corporacion and Morgan Stanley (MS.N).

"The company, along its administrators, will from now on focus in revenue-generating -- through the sale of assets and land management -- and restructuring the company so the project can be revived."

Martinsa Fadesa drew attention to its assets having been valued in June at 10.8 billion euros.

Martinsa Fadesa legal advisor Gomez Acebo had pushed for the company to file for insolvency to avoid further losses, whilst company board members had tried to save the company from insolvency, sources familiar with the situation told Reuters.

Martinsa Fadesa shares were suspended on Monday after the company said on Friday it had not been able to raise a 150 million euro loan, one of the conditions of an earlier 4 billion euro refinancing agreement, and asked its lenders for the deadline to be extended until Aug. 7.

The stock fell 34 percent on Friday and was suspended on Monday at a historic low of 7.3 euros, valuing the whole company at 680 million euros. Its debts total 5.4 billion euros.

REFINANCING

In May, the company refinanced 4 billion euros of debt -- more than half of it built up for Martinsa to buy Fadesa last year. That deal extended the maturity on Martinsa Fadesa's debt to 2011, extendable by two years.

However, the deal was also dependent on Martinsa Fadesa putting up a further 350 million euros to strengthen its balance sheet. The loan missed last week relates to the first 150 million euros of equity the company was trying to raise.

Martinsa Fadesa's May refinancing was coordinated by Spanish savings banks La Caixa, Caja Madrid and Ahorro Corporacion, Morgan Stanley (MS.N), Royal Bank of Scotland (RBS.L) and Banco Popular (POP.MC).

Popular shares closed down 2.74 percent on what traders said were market concerns over Martinsa's ability to pay its debts.

Caja Madrid and Popular both declined to say how exposed they were to Martinsa, although a La Caixa spokesman said his bank had about 700 million euros of loans outstanding with Martinsa.

The Spanish property market has hit the brakes hard this year after a decade-long boom during which house prices tripled thanks to cheap credit and rampant construction.

Earlier this year, banks including Popular and La Caixa seized shares in Colonial (COL.MC) after key shareholders failed to meet debt obligations. They now own more than 20 percent of the company, a competitor to Martinsa Fadesa.

The slowdown has sucked away the cash flow Martinsa Fadesa planned to use to service mountains of debt. Meanwhile the cost of new lending has spiked due to the global credit crisis.

Added to that, more than 40 percent of Martinsa Fadesa's land is not zoned, meaning it could have problems getting building authorisation, particularly as the government tightens development rules.

At the end of March, Martinsa Fadesa had land totalling 28.67 million square metres, 41 percent of which is outside Spain. Its net assets were worth 1.693 billion.

In the first quarter, the company made net losses of 85 million euros and an EBITDA (earnings before interest, tax, depreciation and amortisation) loss of 85 million euros.

Martinsa's Chief Executive Carlos Vela announced last week he would leave the property firm and return to Caja Madrid. (Reporting by Carlos Ruano, Clara Vilar and Elena Moya; writing by Sara Morris and Martin Roberts. Editing by David Cowell and Sue Thomas, Gary Hill)