Martinsa Fadesa woes may herald Spanish rout

By Andrew Hay and Paul Day - Analysis

MADRID (Reuters) - The failure of Spain's largest real estate company Martinsa Fadesa (MFAD.MC: Quote, Profile, Research, Stock Buzz) may be the first in a string of high-profile property sector collapses that hammer banks and propel the economy towards recession.

Martinsa filed for administration on Monday in Spain's biggest ever corporate default, highlighting the huge debt piles held by other Spanish property companies following years of easy credit which helped fuel the now defunct real estate boom.

Spain's five largest publicly traded real estate companies are sitting on combined debts of around 30 billion euros ($47.86 billion) and firms such as Colonial (COL.MC: Quote, Profile, Research, Stock Buzz) are also being pursued by creditors to renegotiate loans.

More failures were considered inevitable, and even necessary, given Spain's heavy economic dependence on the construction and real estate sectors and reluctance among banks and Spain's Socialist government to grant bailouts, industry leaders and economists said.

"With Fadesa being as large as it is, it's difficult to escape the perception that its fall will create a domino effect through the sector, and then through the economy," said Jose Garcia Zarate at the 4Cast consultancy in London.

LEFT TO DIE?

Spain's residential construction and property sectors have been amongst the hardest hit in Europe and have suffered simultaneous blows from the end of a decade-long boom and the global credit crunch.

Smaller Spanish property firms have been seeking creditor protection since last year, but Martinsa Fadesa was the first large publicly traded company to buckle under tighter lending conditions and a 30 percent drop in house sales this year.