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Popular Offers RE Portfolio To 4 Investors For €495M

16 May 2017 – Expansión

Banco Popular has decided to put a portfolio of real estate loans and assets worth €495 million on the market. The package, known as Icaria, contains mostly doubtful loans (known as non-performing loans), linked to real estate assets. There are only a few loans, but they are large and secured by hotel assets and residential developments. In addition, around 10% of the portfolio comprises foreclosed assets.

To carry out this divestment, Popular has engaged the real estate consultancy firm Irea, which has organised a very restricted process with only a handful of large international investors. It has chosen four candidates: Apollo, Oaktree, Bank of America Merrill Lynch and Bain Capital.

The selection of just four candidates reflects the bank’s intention of undertaking a rapid process. The aim is to close the sale in June “no matter what” and that objective has been communicated to the potential buyers.

If the transaction is closed during the first half of the year, as the bank intends, Popular would be able to register the reduction in damaged assets in its accounts for the first half of the year and add new improvements in its capital ratio, which is in a very tight situation and close to the minimum requirements demanded by the ECB. At the end of the first quarter, the entity’s solvency ratio stood at 11.91%, very close to the level of minimum level of 11.375% demanded by the European Central Bank.

Real estate

The sale of large portfolios of assets to institutional investors is a key part of the strategy of the new President, Emilio Saracho (pictured above), as he tries to re-float the bank. Popular wants to focus on wholesale divestments to accelerate the divestment rate of its non-performing assets, which compromise its standalone viability.

Including loans and foreclosed assets, Popular still holds a portfolio of non-performing assets worth €37,000 million.

Despite the efforts made to strengthen its provisions since last year, with new provisions amounting to more than €6,000 million, the coverage of these assets amounts to 45%. That figure is four percentage points lower than the sector average (which stands at around 49%) and makes it very difficult for Popular to divest at a faster pace.

Popular’s CEO, Ignacio Sánchez-Asiaín, said during the presentation of the results for the first quarter, that the aim was to close the year with sales of €2,000 million, extrapolating the reduction of around €500 million achieved between January and March to the year as a whole. Nevertheless, he said that this figure may increase in the event that the entity closes an “anchor sale”, such as the sale of the Icaria portfolio.

In January, Popular sold a portfolio of debt worth €220 million and secured by hotel assets to Apollo. Moreover, it sold loans worth €400 million to Blackstone, which were secured by residential assets (homes, parking spaces, storerooms).

Sánchez-Asiaín said that the entity is analysing what the “appropriate pace” of asset divestment would be for the entity, along with the valuation adjustments that would have to be applied to the assets to achieve it, with the consequent impact on the income statement and share capital.

This scenario, as well as the demands of the supervisors, will condition Popular’s manoeuvre room and its roadmap. Alternatives include its absorption by another entity, an option that the market seems to be increasingly leaning towards, or another capital increase, which now appears less feasible.

Original story: Expansión (by R. Ruiz and M. Martínez)

Translation: Carmel Drake