MADRID Jan 15 Spanish builders have cut debt by
selling assets and reducing staff, leading to sharp stock gains
in the past year and catching the eye of billionaires George
Soros and Bill Gates.
But other investors are cautious, saying debt levels are
still high and the construction sector is stuck in the doldrums
after a property crash that helped drive Spain's economy into
its worst slump of modern times.
The country tentatively emerged from recession in the third
quarter and foreign investors have started to return, putting
behind them doubts about Spain's ability to stay in the euro
that arose during the regional debt crisis.
Although Spanish builders including Sacyr and FCC
have made progress on cleaning up their balance sheets
and looking for business abroad, the domestic market property
market they depend on is still in free fall.
"The situation of most of these companies is still
delicate," said Gonzalo Lardies, fund manager at private bank
Banco Madrid who does not own any Spanish builders in 120
million euros ($164 million) of assets under management.
Shares in builders have lost around 80 percent of their
value since their boom years peak but they put on a good
performance in 2013, with Sacyr leading the pack up 140 percent
compared to a 21 percent rise in Spain's blue-chip index.
FCC shares have risen by 17 percent since Microsoft
founder Gates bought a 6 percent stake in the building and
services company for 113.5 million euros in October.
Billionaire investor Soros has also acquired a 3 percent
stake in the company a source familiar with the matter has told
Reuters, although neither party has yet confirmed this.
Although the builders have made headway in reducing loans,
with ACS for example cutting debt by nearly half in the 12
months to September to 5.3 billion euros ($7.2 billion), most
still have eye-watering net debt to core earnings ratios - a
measure of a company's ability to decrease borrowings.
This ratio varies from 11 to 62 for the Spain's six biggest
builders, according to ThomsonReuters data, against an industry
median of 6.
The investment made through Gates' funds Cascade Investment
and the Bill & Melinda Gates Foundation Trust was only a tiny
fraction of the billionaire' s wealth, but some bankers were
surprised by the purchase.
They say there are better ways to invest in Spanish
builders, through debt rather than their equity.
Hedge funds are mopping up deeply discounted company debt
from banks during restructuring as the returns are more assured
than buying a volatile share from a company whose future depends
on restructuring its debt.
FCC is on the cusp of renegotiating around 5 billion euros
of loans with 37 creditor banks, one of the biggest such deals
in recent years in Spain.
"There are smarter ways to invest in these companies -
through their debt for example, rather than through the equity
with the debt on the top," said one senior Madrid-based banker.
Progress on debt reduction is largely thanks to asset sales
as creditor banks demand that everything be considered for sale
if loans are to be rolled over, bankers say.
Sacyr and ACS have made painful adjustments for their stakes
in Spanish oil major Repsol and energy utility
Iberdrola, both bought at the height of the boom and a
legacy from when builders, flush with cash, sought to increase
holdings in other companies.
Sacyr and FCC have put their real estate units up for sale.
Sacyr has already docked subsidiary Vallehermoso's debt from its
balance sheet by offering it for sale and FCC has appointed
Goldman Sachs to sell its stake in Realia.
Revenue in Spain's construction industry was down 11 percent
in the first nine months of 2013 compared to 2012 figures that
were already at record lows, according to official data.
Both Sacyr and FCC blamed falling Spanish investment in
public works for year-on-year declines in sales for the first
nine months of the year.
The decline comes despite increasing business from overseas
contracts. Sacyr's international sales and FCC's Latin American
income grew by nearly a quarter.
Spanish companies have won high-profile construction
contracts across the world including a 6 billion euro contract
for a metro in Riyadh, Saudi Arabia awarded to a consortium led
by FCC to OHL's 1.95 billion euro contract and a 390-km-long
railway in northern Siberia.
The government swiftly became involved in a dispute over
cost overruns in a project to widen the Panama Canal involving a
consortium led by Sacyr, a sign of the importance of
foreign markets for Spanish builders.
Public Works Minister Ana Pastor flew out to Panama to
mediate the dispute earlier this month. Spanish builders took on
35 billion euros of overseas contracts in 2013, according to
official data, up from 23.4 billion in 2012.
But the companies remain dependent on Spain for the bulk of
revenues. Around 45 percent of Sacyr's income is from Spain, 61
percent of FCC's and 15 percent of ACS's.
The government expects Spain's economic output to grow 0.3
percent in the fourth quarter, the biggest increase since the
downturn started in 2008, but analysts say it will be a muted,
"The stock price rises have been more to do with the
improved health of balance sheets," said Lardies of Banco
Madrid. "A return to health of the Spanish construction sector
still looks a long way off."
FCC is forecast to have made a 38.7 million euro loss for
2013 due to writedowns on its renewable business and Austrian
building unit, according to Starmine SmartEstimates.
Sacyr is expected to have returned to a net profit, of 117.4
million euros, after making a loss in 2012 due to the writedown
of its stake in Repsol, according to an aggregate of
top-rated forecasts. ACS will post modest gains for a net profit
of 726.4 million euros.