Well if you want to know what this is all about you really need to read this post on Lukoil, Repsol and Sacyr where I spell out why it is Acciona needs to sell in such a hurry. Still, I didn't expect this to happen so quickly, yet the Italian daily Il Sole 24 Ore are reporting today that Enel SpA may buy the rest of Endesa before Christmas by purchasing Acciona’s 25 percent stake. Acciona has a put option to sell Enel its stake in Endesa from March 2010 at a price of 42 euros a share, although the two companies have been negotiating to bring forward an agreement.
Reyal Urbis Pressed To Raise 143 Million Euros
The chairman of Spanish building firm Reyal Urbis said yesterday (Wednesday) he had won a two-day extension on a 143 million euro debt owed to fellow shareholder Corporacion Financiera Issos. This whole situation seems to be a very tangled web of interlocked shgareholdings and intrigue, and perhaps the strangest part of the situation for the external observer is the fact that Reyal reecntly reached a deal with creditors to refinance its principal 3.006 billion euro debt in October, and it seems weird that they are now twiddling around with a mere 143 million. Almost 60 percent of Real assets are, however, tied up in what are now very hard-to-sell plots of land.
The background is that Rafael Santamaria, Real's chairman and majority shareholder, last year signed an option under which Issos could sell its 4.9 percent stake in Reyal Urbis back to the company for 10 euros a share or 143 million euros. This option was due to expire yesterday (Wednesday).
Reyal shares closed at 6.05 euros on Wednesday compared to 10.80 euros in June 2007 after Reyal bought Urbis in one of the biggest deals in Spain's then-thriving property sector. Issos is the private investment vehicle of Spanish businessman Jose Ramon Carabante.
Santamaria may hope to get the money he owes Issos from fellow developer Nozar. The unlisted firm also had until the end of Wednesday to pay Reyal Urbis 205 million euros it used to buy 5 percent of Colonial a firm with 10 billion euros of debt whose share price has collapsed this year. Obviously this is all very cliff hanging, and a short term solution may well be found. Spanish media have speculated the Nozaleda family may try to pay the debt in assets rather than cash, but then stumping up assets in this environment is almost like not paying, since what people need is cash.
In an indication of how all this can unwind quite badly under the domino effect weight of one seemingly fortuitous event another investor, Global Cartera de Valores, was also due to pay Reyal a 70 million euro debt by Wednesday night but last Friday Global Cartera filed for administration - a move which was dircetly related to its Reyal debt, according to Spanish newspapers. So basically, if they aren't carefully, a "mere" 143 million shortfall (remember Martinasa and the "anticipoated" ICO loan that never appeared) can simply unwind a carefully designed 3 billion euro, just like that loose thread I am looking at on my pullover can unravel the whole jersey spoon, if I don't do something. Darn it!
Hotel Prices Fall 8% in Q3
On the deflation alert anecdotal gossip front, the price of Spanish hotel rooms fell 8 percent this summer versus the same period 12 months earlier, according to online booking portal Hotels.com yesterday (Wednesday). Hotels.com, which claims to be the most visited online hotel booking website in the world, added that from July to September prices on Ibiza were down 36 percent from a year ago and in Malaga by 21 percent.
The average price for one night in a Spanish hotel stood at around 100 euros in the third quarter compared to 128 euros in the UK - a 13 percent fall year on year, it said. Britain and Ireland were the only European countries where hoteliers cut prices at a faster rate, but the effect is likely to be more marked in Spain since it is the world's second most visited destination and tourism accounts for some 11 percent of GDP.
House Prices Down 7.8% Y-o-Y In November
My feeling is that 2009 will be the year when realism finally arrives in the Spanish discourse about the current crisis. I think this for all sorts of reasons which I will attempt to explain in posts to come, but I think as we approach that point some of the data sources will become rather more reliable, and some of the forecasts rather more realistic.
A good example of this process is TINSA, Spain's leading property valuation company. According to their latest monthly Spanish house price index Spanish property prices fell by 7.8% over 12 months to the end of the November. The Tinsa index may not be perfect, but it is probably the best thing we have (as they say) and certainly a lot more realistic than the rather notorious Spanish Housing Ministry index. What this means is that Spanish house prices are now back to where they were between May and June of 2006, although this is certainly not very big beer yet, since arguably Spanish property prices were already hugely overvalued in the summer of 2006, and not that many people have mortgages of (LtV) 100% of the purchase value post summer 2006 - which is the real measure of bank landing risk as prices drop back. Still, this does now give us a yardstick to work from, and we will be able to follow this index back up river through the months, as property prices fall and fall.
Accounting Irregularities At Martinsa Fadesa
Naturally, a lot of the details behind what we are seeing on the surface at the moment will only become clear later, as events take their course. Some indication of what may be in store for us comes to light in the recent report of the court-appointed administrators handling Martinsa-Fadesa’s insolvency (as covered in the Spanish press). One example would be the plot of land in Guanarteme (Las Palmas, The Canaries) which belonged to Fadesa, and valued at 1 million Euros, and which was subsequently revalude at 170 million Euros following Martinsa's take over of Fadesa during the creation of Martinsa-Fadesa. Another plot of land in Culleredo (Galicia) was revalued from 1.5 million Euros to 84 million Euros, and the property in Puerto Real (Cadiz, Costa de la Luz, Andalucia), which went from 336,000 Euros to 65 million Euros, an increase of 19,000%. All these revaluations helped inflate the value of the assets on Martinsa-Fadesa’s books and allowed Martinsa-Fadesa to book a profit in 2007, and refinance its growing debt, despite its rapidly deteriorating financial situation.
Martinsa-Fadesa able to make these spectacular revaluations thanks to the tireless work of leading property appraisal companies like Tasamadrid (owned by Caja Madrid, one of Martinsa-Fadesa’s biggest creditors), and Ernst & Young, an accounting firm that approved the revaluations in its audit. The administrators’ report values Martinsa-Fadesa’s assets at 7.34 billion Euros, 32% less than a previous valuation by CB Richard Ellis, which doesn't mean, of course, that even this much more realistic current valuation will be what they will eventually be sold for. Far from it probably. Methinks that below all that concrete and cement lies a very large can of worms which has yet to emerge. The patience of Job is what we are all going to need here, and all will out eventually. And of course, the growing army of Spanish unemployed will have all the time in the world on their hands, just to watch and wait.
Brisk Demand For Funds At Spain's Second "Reverse Auction"
Demand for funds more than doubled at Spain's second auction to buy financial sector debt today (Thursday) as liquidity-starved banks seemed to shrug off the stigma of seeking government aid during the credit crisis. Spain's biggest banks Santander and BBVA did not take part but 37 smaller institutions did. As a result the Spanish government bought 7.2 billion euros in mortgage-backed debt from 31 banks at the auction, 91 percent of a maximum 7.9 billion euros, after receiving 9.65 billion euros in bids, according to the Economy Ministry statement.At the first auction on November 20 Spain bought 2.1 billion euros in debt from 23 banks, or 42 percent of a 5 billion euro ceiling, after 4.6 billion euros in offers. So they have now bought a total of 9.3 billion euros. Spain's Fund for Acquiring Financial Assets was estabilshed as part of the rescue programme to provide an alternative market for banks to issue long-term debt. Most institutions taking part were savings banks that are thought to have a high exposure to the property sector and are experiencing greater difficulty raising funds on the open market. Under the current plan Spain is pledged to buy up to 50 billion euros in bank assets, and guarantee around 200 billion euros in bank debt issuance, to prevent capital shortages in its financial sector and boost private sector lending. This scheme may well of course be expanded.
Thursday, December 11, 2008
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Spain At A Glance January 2008
Welcome to the Spain Economy Watch Blog. Below you will find the normal chronological blog posts. But first we would like to present some charts which provide background data and which we hope will help the first time reader better assess and get to grips with the argument being presented here. The Spanish economy is now entering quite a significant economic downturn, and with it Spanish society one of those decisive turning points in its history. What happens next is bound to represent a tremendous challenge of the Spanish institutions and the Spanish people. I can only express the sincere hope that they will prove able to rise to the measure of the day. We now present charts for longer term Spanish GDP Growth, construction activity, house prices, inflation and interest rates, cement output, private domestic consumption, retail sales, immigration, fertility and age structure the rise and initiation of the decline in the 25 to 50 age group. Basically we hope you will find this background data useful in assessing the argument which we are presenting on this blog, which is basically the principal reason why Spain has not had a recssion since 1993 was the existence of negative interest rates via the Eurosystem between the spring of 2002 and the autumn of 2006. This phenomenon also coincided with a high point in Spain's demographic evolution where the 25 to 49 age group constituted a virtually unprecedented anywhere 40% of the total population. The combination of these two together served to fuel one of the longest running and strongest housing booms in history. It is this boom which is now in the process of unwinding and correcting itself. Please click on thumbnails for better viewing.
When we come to the fourth quarter we should expect this downward trend in domestic consumption to continue, and this is exactly what we are seeing in the data, first with retail sales, which are now steadily going down month by month, and then in the weakening of construction, and the fact that industrial output started to contract in December (going by the PMI).
Private domestic consumption peaked back in 2004/5, and the rates of increase have been slowing steadily ever since and we should expect this trend to continue. Even more to the point, in Q3 2007 private domestic consumption only grew at 0.37% over Q2, and we have to go back to Q1 2003 to get a slower rate than this.
2008 Forecasts:The Spanish government in December cut its economic growth forecast for Spain in 2008 to 3.1 % down from the previous 3.3% estimate. The direction of the adjustment is certainly the right one, but the value seems unrealistically high. The IMF were forecasting 2.7% in their October World Economic Outlook, but all of this is in the process of constant adjustment. The OECD dropped their expectation from 2.7% to 2.5%, also in December. The Economist Intelligence Unit don't really stick their neck out too far, merely indicating that "GDP growth is expected to slow to an average of just over 2% over 2008-12, from 3.9% in 2006. As a result of high indebtedness on the part of households and companies, domestic consumer and investment demand will grow less than in recent years." More interestingly the EU Commission is forecasting 3% growth driven by a 2.75% increase in private consumption (which seems rather high to me) and a 3% growth in Gross Fixed Capital Formation driven largely by government investment in infrastructure projects which seems much more realistic.
My own view is rather more downside than all of this. A lot really depends on factors outside Spain's control, such as the growth in demand in other European countries and the arrival of tourists across the year. However since I feel that crunch time for Spain is going to be coming in the midst of a more general European slowdown - the OECD for example cut anticipated eurozone growth from 2.6% to 1.9% in December, so I doubt this climate will be too favourable. Still the Spanish government will be spending on civil engineering projects as fast as it possibly can, so I will go for 1.5% growth in 2008, with downside risk, and slower growth to come as we enter 2009 and 2010. I think Spain will definitely see negative growth in at least one quarter, and as this may well turn out to be Q1, this forecast may well be subject to downward revision as and when we get that data. Evidently everything depends on whether or not we get a hard landing here, but to decide on that difficult topic we need to see a lot more real data.
This blog will not have daily update posts, unless events start to move at a pace which makes those desireable. There will be data updates from time to time, and extensive monthly reports, the next of which will be at the start of February. I also recommend my two recent extenisive summary posts:Some Background Charts On the Banking and Construction Crisis Developing in Spain
Spanish Consumer Confidence, Inflation, 3 month libor etc
1 comments:
I personally expect prices to fall 50% or more in real terms. This because the prices are so out of whack to wages. Small example, young Spaniards earn about a 1000 a month give or take a bit. Yet rents start at 1000 plus costs, mortgage payments (pre bust) ran easily double that.
Anyone expect house prices to recover in 2010 are dreaming.
rob in madrid
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