Grupo Ortiz Completes 5-Year Bond Issue Worth €50M

10 July 2018 – Eje Prime

Grupo Ortiz has finalised the placement of bonds worth €50 million with the aim of replacing a previous issue that is due to expire next year. Thanks to this operation, the company will reduce the cost of its debt and extend its maturity period.

The new bonds, subscribed by qualifying investors, are being launched over five years, in such a way that they will expire in 2023. The interest rate on the bonds is 5.25%. The new securities replace those issued for the same total amount in 2014, which are due to expire in 2019 and which generate a cost of the company of 7% per annum.

The new bonds, just like their predecessors, will be admitted for trading on the Alternative Fixed Income Market (MARF). Grupo Ortiz was the third company to launch debt securities on that market.

In 2017, Grupo Ortiz completed a portfolio of building work pending execution worth €6 billion, up by 45% compared to the previous year, boosted by the expansion of its international business, primarily in Latin America. More than two-thirds of the company’s business is generated overseas.

Original story: Eje Prime 

Translation: Carmel Drake

Bankia, BBVA & Abanca At War with Sareb for “Breach of Contract”

30 January 2018 – El Independiente

Bankia, BBVA and Abanca are at war with Sareb. The three entities are not willing to sacrifice their own results just because the bonds issued by the ‘bad bank’, which they received as payment for the real estate assets that they transferred to it, are now generating a negative return when, according to the conditions established, the coupon should not have been allowed to fall below 0%.

The conflict is in the middle of an arbitration process to determine whether the banks will be forced to accept that Sareb has decided to change the price of those bonds, explain sources familiar with the negotiations, speaking to El Independiente. The affected entities accuse “Sareb of a breach of contract”.

Sareb was created to take on 200,000 financial and real estate assets from the banks in exchange for which it issued €50.781 billion in 1-, 2- and 3-year bonds, which are renewed each time they mature. The interest rate on those bonds comprises two variable components: the 3-month euribor rate – which is currently trading at -0.32% – and the Treasury interest rate over the term in question. On the secondary market, that interest rate currently amounts to -0.43%, -0.21% and 0.03% for one, two and three years, respectively.

Of the €50.781 billion issued, Bankia granted the company assets worth €22.317 billion, Catalunya Bank – now absorbed by BBVA – contributed €6.708 billion and Novagalicia – which now belongs to the Venezuelan group Abanca – just over €5.0 billion.

Officially, the bonds were issued with a coupon that included a floor clause to prevent the interest rate from being negative depending on the conditions in the market. That floor had its own raison d’etre: so that the securities could be used by the entities to approach the ECB to request liquidity, given that, until last year, the bonds had to trade with positive coupons in order to be discounted by the central bank.

Nevertheless, a regulatory change in the middle of 2017 means that the banks can now use this debt as collateral even when those coupons are negative. This argument is enabling Sareb to refuse to maintain the floor clause that kept the coupons at 0%. And Bankia, BBVA and Abanca are not willing to assume that cost.

An executive familiar with the conflict explains it like this: “Sareb agreed that,  in exchange for the real estate assets that the banks transferred to it at the end of 2012, it would pay them a specific amount, not in cash but in bonds. Now it says that it is going to pay less and so, naturally, the banks need to defend their interests and those of their shareholders”.

Of the more than €50 billion in Sareb bonds issued to pay for the 200,000 real estate assets – 80% in loans and credits to property developers and 20% in properties – which nine entities transferred to it, the outstanding balance now amounts to €37.9 billion. In this way, the company has repaid almost €13 billion. Moreover, it has also paid interest on that debt of almost €2.8 billion.

Original story: El Independiente (by Ana Antón and Pablo García)

Translation: Carmel Drake

Moody’s: House Prices Will Rise By 4.7% p.a. Between 2017 & 2019

30 May 2017 – El País

The risk rating agency Moody’s expects house prices to rise in Spain by 4.7% per annum between 2017 and 2019, in line with their evolution in 2016. This will have a positive effect on the balance sheets of the banks and on the behaviour of mortgage securitisations.

Those are the conclusions of a report on the real estate sector in Spain, prepared by analyst Antonio Tena, which nuances these promising forecasts by reminding readers that the number of units sold is just as important as the price at which those units are sold for.

Even if GDP grows at a lower rate than currently predicted, the US agency believes that the rate at which it will likely close the year (2.3%) will undoubtedly sustain this recovery in house prices.

But it is important to “decouple” house prices from the number of operations, given that although the volume of properties is decreasing, it is true that some of the new homes (…) date back to 2006 and 2007 and still have not been sold”. However, those now account for just 10% of operations, well below the pre-crisis levels, when new and second-hand homes accounted for half the market each, reported Efe.

The agency also commented that there is no risk of “overheating” in the mortgage market, said Tena, or of a mortgage bubble happening, given that nowadays just one euro is being loaned for every four euros that were being loaned back in 2007.

Last week, the President of the European Central Bank (ECB), Mario Draghi, spoke along the same lines. He ruled out the danger of a new real estate or credit bubble in the euro zone.

The banks are now a lot more restrictive when it comes to granting a mortgage, said the Moody’s analyst, Antonio Tena. He added that it is important to distinguish between the granting of mortgages and the sale of homes; in 2007, more mortgages were granted than homes were sold, whereas, in 2016, the volume of house sales was much higher than the volume of mortgages signed.

The sale of homes is growing in a sustained way, at around 14% p.a., but that still represents half of the volumes sold in 2007; the data from Moody’s shows that house sales are not decreasing in any city where there are more than 200,000 inhabitants; and that Madrid and Barcelona – and their peripheral regions – as well as the Mediterranean arc, are accounting for most operations.

Borrowers are increasingly older

Another positive indicator, according to Tena, is that the average age of mortgage applicants has increased from 34 years in 2007 to 38 years in 2017. Borrowers now have a greater capacity for saving and financing. (…).

Along with the report about the mortgage market, Moody’s has published another study about covered bonds, which are known here as “mortgaged bonds”. The product plays an important role in Spain, given that for every euro of that type issued, there are €2.50 of mortgage loans, whereas, that ratio barely amounts to 1.10 in other countries. (…).

Original story: El País

Translation: Carmel Drake

Merlin Issues Debt Amounting To €600M, Redeemable In 2025

18 May 2017 – Expansión

Debt issues in Spain, which have been the focus of the financial sector in recent times, have now reached Merlin Properties. The Socimi has placed debt amounting to €600 million, with a term of eight years (maturing in May 2025) at a price of 99.417% of the nominal value and with an annual coupon of 1.75% (125 basis points above midswap). The subscription and disbursement of the issue will take place on 26 May 2017.

Merlin has received requests amounting to €1,200 million for the issue, i.e. double the amount that will be awarded. This level of demand has allowed it to lower the cost of the operation.

Initially, the Socimi proposed a price of 135 basis points above the reference index for fixed income or midswap issues. But, the strength of demand reduced that premium to 125 points.

To carry out the operation, Merlin has engaged the services of Crédit Agricole, Nabca IMI, Goldman Sachs, ING and JPMorgan.

At the Socimi’s General Shareholders’ Meeting three weeks ago, the CEO, Ismael Clemente (pictured above), confirmed plans to resort to the debt markets, although at the time he was unsure as to whether it would do so through convertible debt or senior debt issues, or by refinancing the bank debt.

The last few weeks have reinforced the truce in the debt market in Europe, after Emmanuel Macron secured victory over Marine Le Pen in the French elections.

Original story: Expansión

Translation: Carmel Drake

Sareb Will Create A Restricted-Access Platform For Loan Sales

8 May 2017 – El Economista

(…). Sareb has been led by Jaime Echegoyen for the past two years, and has fulfilled its task of stabilising the financial system in Spain. Now, it is serving as an example for the European bad bank model.

Q: How do you think Sareb has performed since its creation?

A: (…). We are satisfied with what has been achieved over the last five years. We have managed (…) to give confidence to the sector and to serve in the restructuring of the financial sector and the reactivation of the real estate sector (…). If we had started selling off assets really quickly, we would probably not still be here. Everything has been done in a logical way and we have returned approximately 20% of the debt that was materialised in bonds with Treasury backing.

Q: Based on your experience as the President of Sareb, would you create a new bad bank in the same way?

A: (…) I think we have done a really good job, albeit a little late. (…). At the time (Sareb was created), bank delinquency amounted to more than €400,000 million and we decided to resolve one quarter of that balance, which in our case amounted to €107,000 million. That is the nominal value of the assets that were transferred to Sareb, which we purchased and which we paid for using €50,700 million in bonds. (…).

Q: What is Sareb’s main business?

A: The primary focus of our business, which takes up 95% of our resources, is managing the assets for sale through the four servicers: Altamira, Haya Real Estate, Servihabitat and Solvia. (…). We started with €50,700 million and at the end of 2016, we had €40,100 million.

Q: What other new activities are you going to undertake?

A: Of the revenues generated last year (€3,900 million), €2,800 million came from loans and the rest was generated by property sales. Therefore, the activity in terms of loans is very important. The number one source of our revenues in that branch comes from the repayment and cancellation of loans, and then from interest and in third place, from loan sales, and we are now going to focus on that third activity. We are planning to create an internal platform within Sareb, access to which will be restricted, and to which we will invite professionals who know what they are buying and who are qualified to be able to choose a range of loans. We are starting development now and we hope to conduct the first trials at the end of the summer, with an initial volume of loans amounting to €10 million. Depending on how well it is received, we will add more volume.

Q: Sareb’s accounts don’t add up, there are losses. How are you going to approach the next few years?

A: The mandate that we have is to be capable of returning the money that was given to us at the time to buy those assets and to do so in an orderly manner, without having to ask for more money. Our mandate has never been to make money (…). What we do is look at the market value of the assets we have and, whenever we can, we sell them. We only hold onto some of them within our portfolio for future development when we consider that that is the best course of action for the shareholders. Currently, we have own funds amounting to €4,000 million and we have to make those last until 2027.

Original story: El Economista (by Luzmelia Torres)

Translation: Carmel Drake

Taylor Wimpey Keen To Sell Its Spanish Subsidiary

3 March 2017 – Expansión

The British group has said that it will consider offers for its subsidiary, which builds homes along the Mediterranean coast and owns assets worth €150 million.

Taylor Wimpey said on Monday that its presence in Spain “is not strategic over the long term”, which is why the company is willing to sell its business in the country if an interested party submits an attractive acquisition proposal.

The Spanish subsidiary of the British real estate company generated an operating profit of GBP 20.6 million (€24 million) in 2016, a figure that doubled the amount (GBP 10 million) it obtained in the previous year. The improvement in results was due to an increase in house sales in the Balearic Islands, Andalucía and Alicante, the main areas where the company has developments.

The firm completed the sale of 304 Spanish properties in 2016 at an average price of €358,000, exceeding the 251 homes sold the previous year at an average price of €315,000. Most of those properties were sold to foreigners wanting a second home in Spain for their holidays or to retire. In total, Taylor Wimpey recorded turnover of GBP 93.6 million in Spain during 2016, compared with €58.1 million during the previous year.

“The residential market in Spain remained positive throughout 2016”, said the company on Monday during the presentation of its results for last year. “Although the weakness of the pound had an impact on British buyers, we still managed to generate a healthy rate of sales during the year, thanks to our diverse client base”. Citizens from Germany, Belgium and Sweden made up for the decrease in interest from UK investors, who in addition to being hit by a reduction in purchasing power due to the depreciation of the pound, were also fearful about the possibility of losing their rights to travel to and reside in Spain post-Brexit.

Pete Redfern, CEO at Taylor Wimpey, was asked during a meeting with analysts about the possibility of selling the firm’s business in Spain, once its profitability has been restored after the losses it suffered during the real estate crisis. According to Redfern, “the environment in Spain has improved, although it is still an environment that is not seeing a significant entry of new capital. Our business is functioning well, but if a good offer appears to buy it (then we would be interested). Our strategy over the long term does not involve staying in Spain”.

Taylor Wimpey has assets on its balance sheet in Spain worth GBP 123.7 million (€145 million). On 28 June last year, five days after the Brexit referendum, the company undertook a €100 million bond issue, to cover the currency risk of its Spanish business, whereby ceasing to finance its assets in pounds. Those bonds pay out an annual return of 2.02% and have a repayment term of seven years.

In total, the Spanish subsidiary has 19 developments, with a portfolio of 293 homes reserved, for a value of GBP 88 million.

The real estate company left the market in Gibraltar three years ago.

The Taylor Wimpey group, which besides Spain, operates only in the United Kingdom, recorded turnover of GBP 3,676 million in 2016 and generated a net profit of GBP 589.7 million.

Original story: Expansión (by Roberto Casado)

Translation: Carmel Drake

Merlin Will Issue €500M In Bonds Before Year End

16 September 2016 – Cinco Días

The new Merlin Properties will issue €500 million in bonds before the end of the year, according to a statement made on Thursday by Ismael Clemente, the Chairman of the Socimi, following the general shareholders’ meeting, at which the integration of Metrovacesa was approved. The aim of this operation is to convert a bridge loan from the former real estate company, which expires in 2018, into longer-term bonds, and therefore reduce the cost of its liabilities.

Two companies will emerge from the integration approved by the shareholders: the Socimi Merlin, with €9,000 million in assets, which will focus on the real estate business; and another new company, called Testa Residencial, which will focus on the rental homes. The new Merlin will have Santander as its main shareholder, with a 21.93% stake. BBVA will hold 6% and Popular around 3%. Clemente said that it is unlikely that the banks will exit their shareholdings within two years, unless they so wish, and that there are clauses that put caps on the sale of share packages at different points in time.

Moreover, the chief executive of Merlin said that the banks may be in for a surprise because the Socimi is capable of generating high returns. “We are a dividend distributing machine”, he said.

New housing company

Regarding the smaller company, Testa Residencial, the rental home business, Clemente confirmed that work is being undertaken to convert it into a Socimi within the next two years, although it may be sold sooner if a suitable buyer can be found.

He also revealed that the banks will include their own residential assets in this joint venture over the next two years. In the case of Santander, it will transfer more than 4,000 homes and BBVA, another 1,500 homes, figures that are expected to double the size of the company.

Testa Residential currently owns 4,700 homes and has a gross asset value of €980 million.

Original story: Cinco Días (by Alfonso Simón Ruiz)

Translation: Carmel Drake

Socimis Have Raised €1,700M In Funding In YTD16

11 August 2016 – Expansión

Merlin, Hispania, Grupo Lar and Axiare are increasing their capital and attending the bond market in order to finance new acquisitions, increase their asset portfolios and grow in size.

The large listed real estate investment companies (Socimis) – Merlin, Hispania, Lar España and Axiare – are preparing themselves to gain financial muscle and resume their property purchases. Specifically, so far this year, those Socimis have raised almost €1,700 million between capital increases, financing agreements and bond issues and they are expected to continue to pull on the real estate sector this year.

These four companies, which debuted on the Madrilenian stock exchange between March and July 2014 with €2,560 million to invest, have been the stars of the reactivation of the real estate sector and intend to continue to grow this year. Last year, the Socimis accounted for more than 40% of all real estate investment, with an investment volume of around €5,300 million. To that end, Merlin, Axiare, Hispania and Lar España managed to raise almost €3,000 million on the main market through several capital increases.

Bond issue

So far in 2016, the Socimis have again been very active in terms of raising funds for investment. Specifically, Merlin, which is preparing for its merger with Metrovacesa in a deal that will see it become the largest real estate company in Spain, has opted to go to the bond markets. The company chaired by Ismael Clemente completed a bond issue in April amounting to €850 million, with a maturity of seven years and an annual coupon of 2.225%, payable annual in arrears.

Similarly, in June, the Socimi announced that it had signed a revolving loan (a flexible arrangement) for a maximum amount of €320 million over five years, which will be used for the current investment program that it is undertaking, as well as to finance new acquisitions. (…).

Meanwhile, Hispania, which focuses on the hotel sector above all, completed a capital increase in June amounting to €231 million, through the issue and placing into circulation of 25.8 million new shares, at €8.95 per share (the sum of the nominal value and the issue premium). The company in which George Soros owns a stake, which had used up almost all of its investment capacity, has identified new opportunities worth €1,500 million. (…).

Another of the Socimis listed on the stock market that wants to gain financial muscle to make purchases is Lar España. That company has completed a €147 million capital increase this year, through the issue of 30 million shares at a price of €4.92, in order to be able to undertake new transactions.

In addition, in February, the company signed a loan with a banking syndicate comprising Natixis, Credit Agricole and Santander, amounting to €97 million over a seven year term. This financing was associated with the acquisition of Megapark Barakaldo. (…).

Financing agreements

In March, also with the aim of raising funds for investment, Axiare Patrimonio signed a new financing contract with Banco Santander for €14.9 million over two premises in Edificio Velázquez, in Madrid.

In addition, in June, Axiaire reached a financing agreement with Bankinter amounting to €31.2 million, with a five-year term. (…).

Similarly, the company has also signed an agreement with BBVA amounting to €7 million, also with a five-year term. In this case, the financed property is an office building on Calle Josefa Valcárcel (Madrid).

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake

Bank Of Spain: Loans To Families Rose In H1 2016

2 August 2016 – Expansión

First increase since 2010 / The appeal of consumer loans and lower mortgage repayments is leading to a change in the decreasing loan balance trend. However, business financing decreased due to the political uncertainty.

(…) The latest figures from the Bank of Spain and the financial institutions show that the trend in terms of credit is changing, which could make 2016 the year of recovery in the credit sector.

In this sense, loans to families across the sector grew by 1.04% in June and recorded a half year increase, of 0.02%, for the first time since the start of the crisis. In addition, eight of the eleven Spanish entities that have now presented their results, reported increases in gross loans to clients during the first six months of the year.

These figures show that for the first time, the volume of new loans granted by the entities exceed the volume of repayments, thanks to the liquidity measures led by the European Central Bank (ECB) and the need for entities to grow volumes to offset their decreasing margins.

The last time that Spanish financial entities increased their total loan balance to families was during the first half of 2010, when the international financial crisis had not yet reached the Spanish sector.

In this way, families then held financial debt with Spanish banks amounting to €724,100 million, i.e. €117 million higher than the €723,993 million balance at the end of 2015.

Boost from consumption

This rise comes mainly due a boost from consumer credit in recent months, thanks to the economic recovery and the gradual reduction in unemployment. In this way, the outstanding consumer loan balance increased from €162,000 million at the end of 2015 to €171,00 million at the end of June 2016.

This €9,000 million growth offset the incessant deleveraging of households away from mortgages, which have decreased from more than €549,000 million in December last year to almost €541,000 million at the end of the first half of this year. In other words, a difference of €8,000 million, below the growth in consumption.

These figures reflect a deceleration in the decrease of the outstanding mortgage balance, which has been falling at a rate of more than €25,000 million in recent years. In 2016, repayments have slowed and the granting of new mortgages has increased, as reflected by the new credit data.

The change in the trend of loans to households has not affected financing for companies. That decreased by 1.6% during the first 6 months of the year – from €918,199 million to €903,378 million – due to the opening of other alternatives such as MARG and the issue of bonds, and the deceleration in demand caused by the political uncertainty. That was one of the main concerns expressed by Spanish bankers during the presentations of their half year results. (…).

By entity

(…)The increase in Bankinter’s loan balance (13.7%) was noteworthy, although that figure was impacted by the acquisition of Barclays Portugal, given that the entity does not segregate those numbers. It was followed by Abanca,which reported that its financing balance grew by 4.1%; CaixaBank, with a rise of 1%; and Santander España, with an increase of 0.8%. (…).

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake

Sareb Has Returned €1,000M Assets To Banks

24 June 2016 – Expansión

In recent years, Sareb has found itself with an unexpected line of business as it works to slim down its balance sheet: it has been returning certain assets to the entities that transferred them to it initally. The company chaired by Jaime Echegoyen (pictured above) has returned more than €1,000 million in real estate assets and loans linked to the property sector to groups that transferred it the assets in the first place.

Those €1,000 million represent 2% of Sareb’s balance sheet upon creation – €50,781 million – and 13.5% of the total reduction in its asset value since 2012.

The assets have been returned due to information or appraisal deficiencies made by the transferring entities, at the time of transfer, between 2012 and 2013. Thus, some assets were transferred to Sareb with values that exceeded their real values and other should not have been transferred to the company at all, as they did not meet the requirements.

Financial sources consulted indicated that some personal loans were transferred to Sareb, which had nothing to do with the purpose of the company.

According to Sareb’s annual reports, corrections are made to asset purchase deeds “for the purposes of identifying the improper categorisation of assets, changes in the perimeter and errors or variations in the estimated valuation on the transfer date”.

Bond returns

With these properties and loans, the entities have returned €1,000 million in bonds that they received in exchange for their assets. (…).

Sareb was created at the end of 2012 from the assets of all of the entities that received public aid during the European bank rescue. Firstly, the banks controlled by the Frob – Bankia, Catalunya Banc, Banco de Valencia, NCG Banco and Banco Gallego – transferred their properties and developer loans, and then those entities that had received aid but not been nationalised –Liberbank, Caja 3 and Banco Ceiss, together with BMN– transferred their assets.

Of all of these entities, Catalunya Banc has received the most assets (in return) from Sareb over the last three and a half years. The entity absorbed by BBVA has now been returned €365 million in total, mainly between 2013 and 2014. CB is followed in the ranking by NCG Banco – now Abanca – with €182 million; Bankia with €168 million; and Banco de Valencia – purchased by CaixaBank – with €161 million.

By year, the most active period in terms of property and loan “adjustments” was 2014, when Sareb returned almost €550 million worth of assets to the entities. But the real estate company is still finding problems with the homes and loans that it was transferred, and this year it has already sent back assets worth almost €60 million to Liberbank, Bankia, Caja 3 and Banco Ceiss. (…).

A new tool

Recently, Sareb launched a new internal tool to help it handle all of the assets that it has on its balance sheet and expedite their transfer. It is called Atlas and it performs more than 300,000 valuations each year, automatically, cross checking market data with socio-economic indicators, such as rental income and population size in each place. (…).

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake