Sacyr's debt levels worry, fears of fire sales

By Sonya Dowsett - Analysis

MADRID (Reuters) - Investors fear Spanish builder Sacyr Vallehermoso (SVO.MC) could be forced into fire sales as time drags on and it fails to find buyers for assets it has put on the block to cover its massive debts.

Sacyr's share price has lost 69 percent of its value since the beginning of the year as worries about borrowing levels nag, compared to a 39-percent slump in Spain's blue chip index.

"We continue to see material downside risks in the near term for Sacyr -- mainly linked to its high gearing," said Goldman Sachs in a recent research note.

Like many Spanish builders, Sacyr borrowed heavily over the past few years to diversify away from residential property at the end of a nine-year-long domestic housing boom.

Net debt was 18.3 billion euros at end-June, eight times market value. The ratio of net debt to net equity was 5.3, outweighing peers like Ferrovial (FER.MC) at 3.9 and ACS (ACS.MC) at 1.2.

Sacyr said on September 12 it would consider putting assets up for sale, including toll road unit Itinere (ITIE.MC) and 20 percent of oil major Repsol YPF (REP.MC), to pay down debts.

But no firm expressions of interest have materialized and sources say the prices asked are too high. Getting good prices for assets is hard in a bear market with limited bank credit available for potential buyers said one fund manager.

"The ultimate price they are going to get in this kind of market is going to be a much lower price than they would have hoped for. So the ultimate improvement on their balance sheet is much less," said Rupert Morrell at Premier Asset Management.

Around 347 million euros ($444 million) of debt matures in the second half of 2008, which Sacyr has refinanced. But 2 billion euros expire in 2009, pressuring asset sales.

"We estimate that Sacyr would have to sell assets to balance its cash flows in 2009, since ... its cash flow generation is insufficient to satisfy the 2.057 billion euros that expires that year," said Ibersecurities analyst Ignacio Romero.

Sacyr said on Friday it will cover debt next year by renegotiation, housing sales, dividend payments and a possible sale of Itinere.

A source familiar with the matter said Sacyr is talking to a Citi infrastructure fund regarding a possible sale of Itinere. Citi has repeatedly declined to comment on the matter.

Sacyr on Friday declined to comment on any details of the asset sales process.

ITINERE OVERPRICED?

Press reports and analysts say the asking price for Itinere is 3.9 billion euros plus debt, 400 million greater than the value of Itinere's failed initial public offering in April.