Spain fears property meltdown as Colonial value plummets by 40%
By Danny Fortson, Business Correspondent
Published: 03 January 2008
Fears of a property meltdown in Spain were renewed yesterday after shares in the country’s second-biggest real estate firm, Colonial, were suspended. The company had lost 40 per cent of its value in two days and more than half of its board members, including its billionaire chairman, were forced to resign.
Spain’s market regulator, the CNMV, was demanding information from the company yesterday in an effort to understand what had caused the dramatic two-day share price drop last week that saw more than ¿1.5bn (£1.1bn) of the company’s market value obliterated. It also emerged that the company’s second-biggest investor, a family owned firm whose board representatives were among those who stepped down, had begun selling down its stake in the stricken company. It was unclear how much it sold and whether the sales occurred before 27 and 28 December, when the company’s shares went into freefall. The meltdown spurred fears that the slowdown in the Spanish property market, the driver of its economic boom over the last decade, would hasten. Last month G-14, the lobbying group recently established by the Spanish property companies, predicted further house price falls in 2008 and the elimination of up to 400,000 jobs over the next two years as construction of new homes slows.
Colonial sold ¿310m worth of assets yesterday, deals that it says were not emergency money-raising moves but simply part of the normal management of its portfolio. Yet an air of panic surrounded the company as the sales followed so closely on the resignations of former chairman Luis Portillo and nine other members of the 19-strong board last week. Speculation spread that Mr Portillo was also looking to sell his 41 per cent ownership stake in the company.
With its shares frozen yesterday, Colonial was worth ¿3bn, about one-third of the ¿8.9bn debt pile that Mr Portillo loaded on to the company in the last two years through a series of audacious deals to build the company into a giant with major shares of the office property markets in Barcelona, Madrid and Paris. The company has one of the highest debt ratios – more than three-quarters of assets – in the sector.
The CNMV requested yesterday that the company’s top executives clarify whether any holdings they have in the company through complex derivative pos-itions could have led to the sell-off. In a letter to the regulator, Mr Portillo confirmed that he held various such interests and that due to the sudden price drop, unidentified financial entities had demanded payments of ¿42.4m as stipulated under the derivatives contracts. But he denied that the positions were the cause of the share price collapse.
A company controlled by the Nozaleda family, holder of 16 per cent of Colonial’s shares, declared that it held more than 100 million shares – 6 per cent of the company’s stock – through different derivatives contracts and that some of those had been sold, though it could provide no further details.
The turnaround in the fortunes of the company has been almost as dramatic as its rise. Mr Portillo, dubbed in one of many recent laudatory profiles as “The New King Midas” of Spain’s once-hot property sector, transformed his relatively obscure company Inmocaral into the second-biggest in the country through a series of rapid-fire deals, none bigger than the purchase in 2006 of Colonial, a company that was three times its size. Colonial shares resume trading this morning.
http://news.independent.co.uk/business/news/article3303684.ece
Spain’s house of cards has started tumbling down
By Paul Betts
Thu Jan 3, 3:40 PM ET
Last spring, the Spanish property developer Astroc started the ball rolling. Its debt servicing problems triggered the first serious plunge in the shares of Spain’s financially over-stretched property and construction companies. Before crashing, Astroc shares had increased 10-fold since first listing in 2006. Its chairman, Enrique Banuela, who had been catapulted into the Fortune 100 list of the world’s richest tycoons, was also forced to step down.
Then, in the autumn, it was the turn of Llanera to bite the dust. During a short six-year period, this Valencia property group had grown ferociously amid the Spanish property boom. Both cases badly shook the property and construction sector, although many in the industry suggested Llanera and Astroc were special cases.
Now, it is Colonial, another small property fish that has grown by aggressive debt-financed acquisition into the country’s second biggest property group, to be affected by the combination of the international liquidity squeeze, a cooling Spanish property market and rising interest rates. This triple whammy now affects even a company such as Colonial, which is not exposed to the riskier residential property market and earns a steady flow of income from its office buildings in Spain and France.
Luis Portillo, its chairman and largest shareholder, has been sacked. The company is selling assets to cut its huge debt burden accumulated during the heady years of expansion and to reassure investors who have seen the value of their Colonial holdings crumble during the New Year festivities.
Again some argue Colonial is another special case due to its former chairman’s own heavily indebted position, and should not be taken as a sign of a general financial meltdown in the Spanish property and construction sector. That may indeed be so. But after three serious collapses all occurring at three month intervals, it is difficult not to jump to obvious conclusions.
It has become clear the heavily indebted business model behind the spectacular rise in Spanish property companies will simply cease to function in the current environment. The problem in Spain is all the greater given that the country during the past five years or so has been building about 800,000 homes a year – that is the combined annual total of France, Britain and Germany.
The Spanish building industry now expects the number to fall to about 450,000 a year until 2013. As a result, it also warns of some 400,000 job cuts in the sector that has accounted in the recent past for about 7.5 per cent of Spanish gross domestic product. As for house prices, these have increased by a whopping 280 per cent between 1997 and 2006 and are now starting to fall back for the first time in a decade.
So it is not surprising the banks, themselves heavily exposed to the sector, are closing their credit taps. All this must worry the Zapatero administration acutely. Spain holds elections in March, which most people consider are too close to call. If the Socialist government is still claiming a short lead, it could easily be wiped out if Spain’s house of cards keeps tumbling down.
Model railways
If the powerful French railway lobby has its way, Europe will embark on an ambitious high-speed rail journey when France takes over the EU presidency in July. The French state railway company SNCF, high-speed train builder Alstom, the railway infrastructure group RFF and numerous political allies all concur President Nicolas Sarkozy may play a trump card in Europe by launching a series of initiatives to accelerate cross-border passenger and freight rail services.
After all, France has established a clear industrial lead in developing high-speed trains, and what better and concrete way of unifying an enlarged Europe of 27 member states by linking them by affordable, reliable and fast train services?
It would also help Europe’s efforts to protect the environment by encouraging carbon-free rail transport and reducing the damaging environmental impact of air travel and road freight.
The French vision is of high-speed railways eventually replacing short-haul airline services, leaving airlines to cover medium and long-haul destinations.
However, existing European efforts to integrate national railway systems have been affected by costly delays, as the Financial Times reports Friday.
For its grand scheme to pick up steam, France will have to persuade its main European partners – not to mention its own political and business lobbies – that such problems can be overcome. Still tougher, it will also have to persuade them to halt airport and motorway expansion plans in favour of multi-billion euro investments in high-speed tracks and trains.
http://news.yahoo.com/s/ft/20080103/bs_ft/fto010320081554450521;_ylt=Al921XtD0B17DFr5L8ygH8n2ULEF
