This content is from: Local Insights

Spain: 2015 Spanish odyssey

Iñigo de Luisa
After several years of economic turmoil, Spain's GDP forecasts anticipate a two to three percent increase for the next two years. This is probably the best performance of all EU members. Consumption rates are improving and foreign investors' interest is high. However, it is true that the unemployment rate remains too high (above 20%) and this year of elections (regional, municipal and Spanish government) could have an unexpected impact on investors' attitudes.

It is clear that the appetite of international investors, distressed and special situations funds and debt trade desks will continue in 2015. They have previously revolved around the usual well-known corporate names, but this should change and new names will come into action.

We are still digesting the insolvency reforms passed in 2014, which introduced new alternatives and majorities in restructuring financial debt at pre-insolvency stages (the FCC case) and even in amending ongoing composition agreements (the Martinsa Fadesa case). Now, secured creditors can be crammed down and all creditors' positions should be reviewed in order to avoid unhappy surprises in the next restructuring processes.

Interest on loan portfolios (secured and unsecured, performing and underperforming and REOs) will continue. The Spanish bad bank, SAREB, and several other Spanish financial entities will continue these sales through competitive processes. Corporate loans are still in their balances, so at some point should also be put on sale, but this decision is still highly conditioned on the provision levels already in place. Secondaries will also take some attention, since we will see attractive opportunities which will continue to provide nice returns if the portfolio is adequately managed. In all these situations, it is critical to conduct a previous legal due diligence and have adequate management and servicing to maximise the investment's yield.

There is also a lot of interest on direct lending. However, the Spanish banks are now much more open to finance deals which in the past had their gates totally closed. Moreover, in other situations financial costs have been reduced significantly. Therefore, in order to obtain the expected returns, debt funds willing to take a bite of this market will have to dive into rocky waters. Having said this, we see opportunities on short-term corporate financing and on bridge loans to purchase land to develop residential projects and to fund the one- to two-year construction period.

Interest on real estate from investors was high in 2013-2014 reaching nearly €7 billion ($7.96 billion) in 2014 and is now moving onto institutional investors. Prices stopped decreasing and we now expect increases due to competitive bids. Rentals are already up (optimistic forecasts predict a 20-30% increase in the next three years in Barcelona and Madrid), and Spanish construction and real-estate companies are taking most of the market's attention (for example Colonial, Assentia, Realia, San José, Acciona, FCC, Abengoa, ACS, Isolux, and OHL).

We see investors' appetite focussed on land and residential, and of course they will continue to be active in offices, shopping centers and hotels. No doubt yields are being compressed since closing prices are moving up. Deals are also moving out of Madrid and Barcelona, and Portugal is back on the radar too. SOCIMIs – Spanish REITs [real-estate investment trusts] – captured more than €3 billion in 2014, and despite the particularly large acquisitions of 2014 (just SOCIMIs spent more than €2 billion), they promise to be big players in Spanish deals in 2015.

We also see large Spanish corporates, which continue to be highly indebted, looking for an international partner (following the examples of Uralita, Abengoa, Acciona, NH hotels, ACS, FCC and others). Reducing debt and deleveraging are the main drivers of many of these transactions. We will see more yieldcos listed as a way to obtain some extra cash and deconsolidate debt at the group level.

We also expect interesting restructuring deals involving energy projects and renewables (in particular solar and wind plants), which have been hit by last year's subsidy-reducing reform. Other investors have just changed their strategy and want to exit from this sector. Build-up projects aimed at purchasing these distressed or opportunistic situations are also ready to move forward.

Infrastructure in Spain will also be a leading sector in 2015, starting positively with AENA's initial public offering. It is going to be a busy year in both the equity and debt capital markets.

In summary, we anticipate many attractive opportunities in the Spanish market to appeal to all investors' preferences and goals. Just remember, it is critical to source them with the best local teams and advisors. Good luck hunting in Spain!

Iñigo de Luisa

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