13 July 2016 – Expansión
Banco Popular has almost oiled the machinery that it will use to remove between €3,500 million and €4,000 million in property from its balance sheet. The entity chaired by Ángel Ron (pictured above) has engaged Deutsche Bank and EY to create a real estate company, which will be opened up to investors, in order to deconsolidate its assets, according to financial sources.
The plans are already well underway, although the complexity involved means that they will probably be delayed until the end of the year.
For the time being, Popular and its two advisors will focus on defining the perimeter of the assets to be transferred to the company and in creating the ideal structure. To this end, the bank will write to Spain’s National Securities Market Commission (CNMV) to obtain the necessary authorisations.
The plan being carried out by the entity is very similar to the one conducted by Santander, and to a lesser extent by BBVA, with Metrovacesa, when it reduced its stake and transferred its assets in order to deconsolidate them from their balance sheets. That forms part of the merger plan with Merlin Properties. Popular also owns a stake in Metrovacesa, and so has followed the process closely.
In theory, all of the assets to be transferred to the new company will be foreclosed: land, homes and work in progress properties. The new company will have its own management team, which will operate independently of the bank chaired by Ron.
Popular owned €16,132 million in foreclosed assets at the end of 2015. Of those, €4,352 million related to finished buildings; €6,685 million was land; €1,436 million comprised homes proceeding from (unpaid) mortgages; €398 million related to buildings under construction; and €3,255 million corresponded to other assets.
In addition to these foreclosed assets, Popular held doubtful loans to property developers, which took its total exposure to problem assets to €34,000 million, making it the financial group with the largest real estate inheritance in the financial sector at the end of 2015.
That situation movitvated the €2,500 million macro capital increase that the entity completed last month. One of the main objectives was to increase the coverage of the problem assets from its current level of 38% to 50%, in line with the rest of the sector. The low coverage ratio was one of the impediments facing the entity in its efforts to undertake large sales of real estate assets.
The bank’s strategic plan involves reducing the volume of problem assets by €15,000 million between now and 2018, to €19,000 million.
In addition to its large operations, such as the one it is working on with Deutsche Bank and EY, Popular is also promoting the sale of properties through its commercial network and its real estate manager, Aliseda. That company is controlled by Värde Partners and Kennedy Wilson, which together own a 51% stake in the share capital, and Popular, which holds the remaining 49% stake.
Värde Partners is one of the major investors who will be invited to participate in the company. In addition to Aliseda, the US fund has joined forces with the bank in its credit card business, WiZink, in which it acquired a 51% stake. Värde also recently launched its own property developer, Dospuntos, which has an ambitious investment plan amounting to €2,000 million. Even so, the project will also be opened up to other international and domestic investors.
Original story: Expansión (by Jorge Zuloaga)
Translation: Carmel Drake