* Government in talks over 4 bln eur rescue of bankrupt
* State debt to increase, hopes to avoid impact on deficit
* Builders to take hit, banks to refinance loans
By Sonya Dowsett and Jose Elías Rodríguez
MADRID, Nov 28 The Spanish government is nearing
a deal with the country's main builders and banks to rescue up
to nine bankrupt toll roads and take over debt worth up to 4
billion euros ($5.4 billion), four sources with knowledge of the
Motorists have preferred to use Spain's free national
highways during the recession so traffic on the toll roads has
fallen nearly 40 percent in the 5-year economic slump.
The government is seeking to create a state company to take
on the debt as one long-term, low-interest loan, the sources
said. The builders will get 20 percent of the equity of the new
company, taking a hit estimated at 1.7 billion euros on their
Builders, including Ferrovial, Abertis,
OHL, ACS, FCC and Acciona,
created joint ventures to win concessions from the government to
build the toll roads during Spain's boom years.
They borrowed money from banks such as Santander,
Caixabank , Bankia, Popular
and BBVA to do so.
The arrangement avoids debt linked to the troubled toll
roads counting towards Spain's deficit as the country fights to
reduce its budget gap to hit Europe-agreed targets.
"All the parties are trying to reach a solution," said one
source close to the negotiations.
"The alternative would be the toll roads going bankrupt and
the government having to suddenly deal with an extra 4 billion
euros booked to its budget deficit."
However, the loans will swell the country's public debt,
already tipped to rise to nearly 100 percent of economic output
next year, its highest level in more than a century and up from
40 percent at the start of Spain's severe economic downturn five
"The three parties are going to lose out and the question is
who loses the most. I think the three will opt for keeping
losses to a minimum and parking the problem for the long-term on
the shoulders of the Spanish taxpayers," said Mikel Echavarren,
head of Madrid-based real estate consultant Irea.
It is not the first time that the government has had to step
in to mop up the excesses of Spain's housing and construction
boom which ended abruptly five years ago.
Spain set up a so-called 'bad bank' last year, under the
terms of a European bail-out of its lenders, pushing up its
so-called contingent liabilities - debt that has been issued by
semi-public entities backed by the Treasury - to 181 billion
euros, equivalent to around a fifth of economic output.
Under European law, if at least half the income of this
state-owned company covers maintenance and debt servicing costs,
it does not count towards deficit.
The government has said repeatedly any solution to rescue
the roads would not hurt the country's deficit.
The plan will need the blessing of the EU competition
authorities as the transfer of private debt into the public
domain could be deemed a state aid for the companies operating
Spain's Treasury Ministry and the office of Europe
competition chief Joaquin Almunia declined to comment. The
Public Works Ministry did not respond to requests for comment.
Builders Ferrovial, Abertis, OHL, ACS, FCC and Acciona as
well as domestic banks Santander, Caixabank, Bankia and Popular
declined to comment.
Spain's second-biggest bank BBVA declined to comment, except
for saying that it had already taken into account any possible
changes on the current terms of financing for the highways.
In addition to the debt it will swallow, the state will take
out at least a further 1.2 billion euros at an interest rate of
around 6 percent which it will use to cover the pending
compensation payments to people who gave up land for the roads,
one source with knowledge of the talks said.
The negotiations centre on at least seven bankrupt toll
roads, including the four so-called 'radial' roads of Madrid,
which radiate out from the capital; the toll road that runs out
to Madrid's Barajas airport and the toll road that runs from
Madrid to the east coast of Spain.
Builders, including Ferrovial, Abertis, OHL, ACS, FCC and
Acciona, created joint ventures to win concessions from the
government to build the toll roads during Spain's boom years and
borrowed money from banks to do so.
They will now have to take a hit on the equity invested in
the roads, estimated at around 1.8 billion euros by one senior
sector source, receiving just a 20 percent stake in the new
company, whose equity will be valued at 600 million euros.
Most of the companies have already written down a big chunk
of the losses, meaning the impact on their earnings should be
Domestic banks have also likely already written off their
investments in the troubled toll roads, one source close to the
The state and the banks are looking at a new 30-year loan to
the state-owned holding company with a low interest rate of 2.6
percent, one source close to the process said.
"What the banks are doing is refinancing the debt at a much
lower interest rate over a long period of time," said one
source. "The state will pay back the loan at much more
favourable maturities and at much lower interest rates."