Spain's property firms demand debt relief from banks

Fri Jan 25, 2013 3:00pm GMT

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* Property firms want debt to reflect loss of asset value

* Banks more open to talks after heavy provisioning efforts

* Bankruptcy threats could accelerate deals

By Carlos Ruano and Tracy Rucinski

MADRID, Jan 25 (Reuters) - The few listed Spanish property firms to survive a brutal real estate crash are stepping up the fight with banks for more generous debt relief to outlast a crisis that could yet have years to run.

Companies must persuade banks that have already been forced by the government to write down property loans to cut their debt to reflect the plummeting value of the assets linked to it or simply to give them more time.

But property prices have dropped by some 30 percent since a building boom collapsed in 2008, crippling Spanish banks that were heavily exposed to the sector.

Dozens of property companies have folded, saddling the banks with empty lots and unfinished buildings that are impossible to sell in the moribund sector.

With the market not expected to hit bottom for two more years, the country in deep recession and unemployment at 26 percent, time is running out for firms that refinanced debt right after the crash and whose borrowings are now coming due.

"Talks are accelerating to try to resolve the property problem," a source from a large property firm said on condition of anonymity.

ASSET SWAP

Reyal Urbis, whose shares have dropped 86 percent since a market debut in 2007, said this week it is in talks with banks to swap assets for debt of 3.6 billion euros in a last-minute attempt to avoid bankruptcy.

Realia, whose shares trade at about 1 euro after peaking at 6.5 euros in 2007, is negotiating 1 billion euros of debt. Its market capitalization is just 300 million euros.

Realia and Reyal have some income-producing leases on commercial property, making them more viable.

But many smaller and medium-sized developers with assets that are mostly undeveloped land or unfinished buildings have no revenue stream and face being shut down by creditors.

Rafael Powely, a Madrid-based director of strategic consulting at property agent Jones Lang LaSalle, said the sector will be closely watching to see what is happening to property loans that are being moved into a bad bank, known as SAREB, that was set up to deal with toxic assets from the property crash.

Many lenders hold debt alongside the bad bank and will have to follow its lead, he said.

"The banks and SAREB are likely to see little reason to refinance property companies that don't have income producing assets," said Powely. "Most small and medium Spanish developers are in that category."

REFINANCING LOOMING

Large Spanish builder Sacyr refinanced in 2010 all of the borrowings at its Vallehermoso property unit until 2015, and its Testa property unit generates revenue from commercial properties.

But a spokesman said it is constantly seeking other solutions to improve debt and liquidate housing stock.

"The five-year financings that took place at the start of this crisis are coming to an end," said Jose Navarro, assistant managing director of the Spain office of international property company Savills.

The building bust in Spain left banks with 184 billion euros ($244 billion) of bad real estate debt and half-built developments around the country.

Seven banks were eventually taken over by the government and Europe has put 40 billion euros of emergency money into Spain's financial system.

Banks have since tried to purge their exposure by writing down billions of euros worth of toxic assets to comply with new government rules, possibly opening the door to new agreements on debt owed by property companies.

But at the same time they are struggling with rising non-performing loans. Bad loans hit a new high in November at 11.4 percent of the outstanding portfolio.

"Previously banks wanted to avoid writedowns at any cost, but following the (government) decrees that oblige provisioning it now makes sense to remove from the balance sheet loans that are eating up capital," a banking source said.

"Especially when the sector outlook is negative. Banks have already renegotiated and refinanced loans on the assumption that the sector would recover. That isn't happening," the source said on condition of anonymity.

Struggling under the weight of debt, property giant Martinsa Fadesa as well as smaller companies like Labaro or Nozar have filed for bankruptcy to protect their assets.

Metrovacesa, Spain's largest real estate company at the height of the boom, was taken over by creditor banks in a debt-for-equity swap in 2009.

Refinancing a property company in the context of a rotten market may seem unappetising for a bank because it is unclear when the company will return to health. But the alternative, bankruptcy proceedings, will only lock up assets.

"Once a company enters bankruptcy, whichever assets belong to the bank can't be touched for two years, so it's better to find a more organised solution," one banker said, speaking on condition of anonymity. (Additional reporting by Tom Bill in London; Editing by Fiona Ortiz and David Cowell)

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