According to a Reuters report this morning, Spanish real estate company Reyal Urbis have reported this morning reaching a deal with creditors to refinance debt of 3.006 billion euros ($4.05 billion). In a statement to the stock exchange regulator, the firm said it had obtained two new credit lines which gave the company "the necessary liquidity for its operative management.
The new deal refinances two syndicated loans signed in 2005 and 2006 in addition to other loans and debt issues, said the company. Under the new financing terms, the company has postponed its first payment on the debt until October 2011 and signed up to twice-yearly payments after that date until 2015, when it will have to pay off the remaining 40 percent of the debt.
Reyal Urbis said it had provided additional debt guarantees against stakes, shares and mortgages. Like other Spanish real estate companies, Reyal Urbis is facing increasing pressure to meet growing debt payments as its revenue shrinks and asset values drop in Spain's property crisis.
One of Spain's largest developers, formed through the merger of Urbis and Reyal in 2007, Reyal Urbis said it had net debt of 5.5 billion euros when it reported its first-half results.
So basically, we are displacing the problem forward to 2011, which promises to be a very complicated year indeed if many more developers are able to get similar refinancing deals following the recent collective bank bailout. Obviously by that point we will not only have all the existing debt to think about, but also all the additional interest charges incurred in the meantime.
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Edward Hugh is only able to update this blog from time to time, but he does run a lively Twitter account with plenty of Spain related comment. He also maintains a collection of constantly updated Spain charts with short updates on a Storify dedicated page Spain's Economic Recovery - Glass Half Full or Glass Half Empty?
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7 comments:
Edward
Many thanks for maintaining this excellent blog. I'm a Brit who's been working in corporate finance in Barcelona for the last couple of years...and I'm very worried! There seems to be a general state of denial about the current situation. I can accept this from the government, who may have to avoid displaying an outward sense of panic, and I'm giving them the benefit of the doubt for now. However, from my daily encounters with entrepreneurs and their advisors, there is often a worrying state of complacency about how bad the situation is. The rise of the Spanish economy has once again given Spain a sense of purpose and pride on the world stage and any criticisms of the Spanish economy are often deeply unpopular. (Criticisms of anything in Spain can prove deeply unpopular – I won’t even start on Spain’s attitude to racism…)
I don’t want to come across in any way anti-Spanish, as I enjoy living here, however I would use the following to describe much of the business practices in Spain: Lack of transparency, complicated politics, conflict of interest, speculative bubbles… above all , I have the sense that people never put their cards on the table and will practice uppermost brinksmanship until the very end.
This is what worries me. Spain has been conspicuously absent from the negative headlines over the last few months and the “Spain wasn’t exposed to sub prime” which many people happily defending Spain’s economy will tell me, doesn’t wash with me. Aside from the excellent analysis of your blog, I can offer countless anecdotal evidence of businesses which are insolvent, looking to “ride out the storm”, banks up to their necks in lending to real estate developers who are sitting on millions and millions of losses. We haven’t even reached the crisis yet. There is a huge amount of bad news being hidden.
This is a chance for Spain to carry out a much needed restructuring of its economy (and your joking suggestion of paying immigrants to un-build houses is probably the best way to start!), but I worry that they will find a way to spin the wheel again, keep the real estate developers ticking over, refinance for another few years etc. I am concerned about the economic effects in the medium to long term. Even during good times, I would have argued for a discount on the valuations of all companies on the Spanish stock exchange, purely because of lack of transparency and my other doubts mentioned above. I’m some what incredulous of the information I’m reading in some of the Spanish press about the health of the banking sector, the strength of their companies, as if Spain had somehow out-manoeuvred the crisis. Maybe I’m overly cynical or pessimistic, but I do feel I have an insight into the way business works in the UK and Spain. I’m not saying the UK is crystal clear by any means, but I do believe there are subtle cultural differences which concern me, and I do sometimes feel that the international community should be more suspicious of Spain than they actually are.
We saw what happened in Japan where bad news was hidden and economic growth was hampered for a decade. Managing to somehow refinance the current problem, without making any reforms, will only make Spain less competitive over the medium to long term.
I look forward to further blogs.
Kind regards
JSA
Hello JSA an Edward
Regarding the government I am every day more inclined to beleive that they are lyers as well as incompetents, and are way above their heads on this matter.
In my case depending on whom I talk to, I get very diferent perceptions of the situation. I am myself an entrepreneur, and when I talk with my entrepreneur friends, (from retail sector, imports, transport, logistics, real state, publicity...) they are "terrorized" with what is coming down. They have their own business (medium size business) and the sales have been crashing between 30 to 50%. But when I talk with friends that are either employed or in the government, they don't realize how bad this is. So maybe it depends on which sector you are dealing with, and the size of the companies.
In our business, in september 2007, we saw for the first time a decline in sales (we had been growing previously at a rate of 20%), so we started to prepare for cost reduction and lay-offs. My banker's branch directors were really surprised to hear me talking about a big recession coming, they were pushing me to get more credits to invest. They are banks, for god sake, they should know more about the economic situation than anybody!!! Now they call me to ask for my insigth.
Common spanish people do not read a lot, and get most of their news either through the Radio (la SER) o through the TV. In either case, the news are either biased or ligth. This is the reason I keep on bothering Edward, for him to write the blog.
And then spanish are optimists and impulsive people, my friends keep on telling me: " a mal tiempo, buena cara", they would rather hide the problem than face it.
Seriously I do not think this can be dealt with trough refinancing, the amounts are too high. Prices for houses will come down, property developers as well as a lot of businesses will go bust, and hopefully interest rates will go down and help to smooth the situation. But we will have a very nasty recession. What worries me is that not only the weak business will disapear, but also a lot of good businesses that are solvent but illiquid. See, the economy starting 2004 has boomed, and demand has been so strong that most businesses have invested heavily in machinery, logistics, IT, to handle this surge of demand. We are experiencing such a huge drop in demand (more like a fall from a clif) which is making all this new capacity and investment redundant. But these costs cannot be trimed down as they were financed over several years.
Regardless of all this, I have lived in a lot of countries and I do think that Spain is the best...
MDM (temporarely in china for the Canton fair).
Hello JSA and MDM,
Just to say thank you for taking the trouble to post these two interesting and revealing insights into life on the ground.
As you can probably imagine life is pretty hectic for me at the moment, since I am also actively trying to follow what is happening in Eastern Europe, and basically it is "all" happening right now.
I will try and find the time over the weekend for something more considered, so do check back. Meantime, have a good week, and...
"temporarely in china for the Canton fair"
well this should now give you some first hand insight into how rapidly China is slowing. All the anecdotal evidence I am reading suggests there is now a very strong credit crunch there too, and since the depend on exports to Japan the US and Europe, which are all in or near recession, well then they too would seem to be about to have a rather hair-raising time.
Hello again you two. It is now Sunday, and I have finally found some time after a nice sunny day out on Montseny - the "lungs of Barcelona".
JSA
"There seems to be a general state of denial about the current situation."
Yep, and I think this is absolutely right. Strangely people seem to have noticed this weeks Argentinian decision to nationalise their private pension system (reflecting I think a general underlying concern about the future of pensions here - not a few people asked me over the last week "is it really true that our pensions are safe at least up till 2029", with an ever so discernable note of doubt in their voice). Basically Argentina is going to nationalise the second pillar, but there is no danger of this happening here in Spain since the "reform" never got as far as creating a second pillar. So if the government ever get really stuck for money, then they will evidently simply need to go directly to the first and only one.
Basically, as I have been saying, I see little point in simply paying builders expenses to help them keep on building un-needed houses.
The really important thing I think is still that European governments generally have still not spelled the details of just how much direct funding they are going to need (and for what exactly), or how the funding to be booked out and financed.
Basically I think there is a big danger that the government simply shove money into banks, sell treasuries to finance this, and then the banks buy the treasuries (international investors may not be so keen, or may demand a higher yield) "since we wouldn't want to do too much risky lending on mortgages, at least not with today's property prices, and we'd better make more provision for future loses, hadn't we", and thus the thing becomes a circle, with the real economy simply continuing to contract.
"Lack of transparency, complicated politics, conflict of interest, speculative bubbles… above all , I have the sense that people never put their cards on the table and will practice uppermost brinksmanship until the very end."
Well this is just it isn't it, and now the government may end up playing the brinksmanship to beat all brinksmanship. I simply can't believe that no important builder has gone into administration since Fernando Martin (Martinsa Fadesa) and even he is only in administration and not fully in "quiebra", which means that must hold out some kind of hope beyond hope of a refloat, even in this case.
So they are all in the "reanimator" chamber, being kept alive (cryongenics would seem to be a better bet, you know, wake them all up in 50 or 100 years) while the rest of the Spanish economy is in danger of dying on the vine. This is conflict of interest "a lo grande", and seems to suggest that the buiders are just too important and well connected to let go, or perhaps they simply got too big to be allowed to fall, since when they do they will bring some banks tumbling behind them, but if we aren't careful now behind the banks will come tumbling the public finances, if this is simply allowed to run and run.
The numbers involved are astonishingly large. The 100 million euros promised for this year alone is 10% of GDP, and while the assets the government will acquire are by no means all capital losses, they do need, to be funded in the short term, which means either selling treasuries, or letting the existing pension fund invest in them, or some combination of this kind of thing.
"This is what worries me. Spain has been conspicuously absent from the negative headlines over the last few months"
Yep, this is very fishy, isn't it. I have been looking systematically - even behind the headlines and in more obscure places - throughout the whole recent bout of turmoil, and there has been very, very little in the way of news about Spain, which cannot be simply a reflection of the fact that everything is fine, since it obviously isn't. This is not a case of "no news is good news".
"We haven’t even reached the crisis yet. There is a huge amount of bad news being hidden."
Exactly.
"but I worry that they will find a way to spin the wheel again, keep the real estate developers ticking over, refinance for another few years etc. I am concerned about the economic effects in the medium to long term."
Yep, this is it. We are buying peace and quiet in the short term, but what then happens next? The resources they are wasting on the builders should be going into exploring new creative possibilities, and especially for the export sector, since there is also the little problem of the current account deficit which needs sorting out, and domestic construction doesn't really help that much here, and may even add to energy costs, which then need more imports.
"We saw what happened in Japan where bad news was hidden and economic growth was hampered for a decade. Managing to somehow refinance the current problem, without making any reforms"
Japan is also very much to the point, since this is how debt to GDP shot up from around 65% in 1995 to the current 182%, and bad as this news is for Japan, there is simply no way Spain's government can run up a debt like the Japanese one, since they also have the current account to think about (among many, many other reasons too evident to mention).
"And then spanish are optimists and impulsive people, my friends keep on telling me: " a mal tiempo, buena cara", they would rather hide the problem than face it."
Or like here in Catalunya, where people say "no hi ha mal que per cent anys duri", to which I reply: absolutely, but then you are saying that a 99 year problem is most definitely not excluded.
Edward
I wanted to congratulate you on your blog and wish you a merry Christmas. I discovered your blog earlier this year and have been an enthusiastic reader ever since. You're in exalted company along side Krugman in my favourites tab...
Ingratiating aside, I am interested in keeping tabs on the Colombian economy (I'm British, live in Spain and my wife is Colombian so I like to try to keep abreast of things). Can you suggest any good blogs or websites (english or spanish)?
Note from the trenches as it were: the lack of visibility of earnings for companies is frightening. Anyone making a 2009 budget based on the last quarter of 2008 will be insolvent within 6 months - so it's really just a case of praying! Unfortunately I don't think the politicains, or the general public are anywhere near grasping the roots of the problem, so I think praying is just about all there is to do....
I wonder how business is doing for the church? There are no athesits in fox holes - so as times get tougher I'd put a definate buy recommendation on their stock.
Thanks
JSA
Hello JSA, thanks for your nice comment.
"Can you suggest any good blogs or websites (english or spanish)? "
I can't I'm afraid. I haven't seen anything on Colombia, although Bloomberg and Morgan Stanley Global Economic Forum have stuff from time to time. My impression is though that once the current crisis fades, say 2010, things could be a lot better in Columbia than many imagine, although apart from the improving demographic profile I can't offer much in the way of justification for that opinion at this point. Maybe it is just a hope.
"Note from the trenches as it were: the lack of visibility of earnings for companies is frightening. "
Yep. This is the kind of impression I have.
Anyway, good luck and a happy xmas.
Edward
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