ACS seen using Fenosa sale proceeds for debt

By Carlos Ruano and Judith MacInnes

MADRID (Reuters) - Spanish construction company ACS (ACS.MC) could cut its 18 billion euro ($28.6 billion) debt by almost two thirds if it sells its 45 percent stake in utility Union Fenosa (UNF.MC), according to analysts' estimates.

Like many other Spanish builders, ACS built up debt during the construction boom, then added on loans to buy shares in Union Fenosa and its rival Iberdrola (IBE.MC), taking its gearing to 82 percent by the end of March.

While the utilities' steady income and dividends help ACS pay some of its debts, a hefty 3.1 billion euros repayment is due before the end of the year, analysts said.

If ACS sold Union Fenosa, it would not only get cash to pay off debt but would also deconsolidate the utility's 5.9 billion euros borrowings from its balance sheet and shake off the cost of servicing the loans it took on to buy into the energy sector.

Analysts at Merrill Lynch reckoned the Union Fenosa sale would cut ACS's debt to 5.1 billion euros while Ahorro Corporacion put the final figure at around 6 billion.

Shares in Spanish building and property groups have tumbled this year on debt worries, particularly as real estate companies like Martinsa Fadesa (MFAD.MC) have gone into administration. ACS shares are down about 22 percent since January.

On Monday, a source close to the deal said ACS would put its Union Fenosa stake -- worth about 6 billion euros at market prices -- on sale this week and expected to close the deal by mid-September. ACS bought the stake for 4.2 billion euros.

When ACS said it was considering selling the stake last week, it said it could "consolidate" its position in Iberdrola, triggering speculation it would use the cash buy more stock.