Tag: carve-out

Popular Stakes Its Future On The Segregation Of Its RE Arm

4 November 2016 – Expansión

Banco Popular is in the eye of the storm. The bank’s senior officials are facing the future by effectively placing a firewall between the entity’s normal banking activity and its real estate risk, however, the markets do not seem to be able to trust that they will succeed in finding their way out of the tunnel the entity entered when the real estate bubble was about to burst.

Following two major capital increases, amounting to €2,500 million each, and a third, smaller, capital injection of €450 million, as a result of which a Mexican investment group, led by the Del Valle family, became a shareholder of the group, the value of the bank (based on its share price) currently amounts to less than €4,000 million, making it the domestic financial entity that has seen its market capitalisation decreased by the most this year.

Popular has two lives: one afforded by its traditional business, which focuses on rendering financial services to individuals, self-employed people and SMEs, and where its efficiency and profitability ratios are high; and the other one, linked to the real estate sector, where the cumulative losses due to the impairment of its assets represent a real threat to the rest of its activity. (…).

Although the bank has received several offers to join a larger and more powerful financial group, the Board of Directors and the main shareholders who serve on the Board have categorically rejected them all, preferring instead to continue to lead the entity along its own path. “We do not want Popular’s intrinsic value to benefit others”, the entity has said time and time again, in order to justify its negativity towards a corporate operation in which it would fail to take over the reins. (…).

The two capital increases (the first one was carried out in December 2012 and the second one at the start of the summer) were accompanied by the appointment of Francisco Gómez (a man who has worked at the bank for his entire life) as the CEO (in the case of the first) and by his replacement by Pedro Larena, previously from Deutsche Bank and Banesto (in the case of the second). The aim was the same in both cases: to try to convince the market each time that the change in management was going to effectively deal with the recurrent problems, in other words, to eliminate the real estate risk.

Popular has tried to resolve its problems in the traditional way…by selling off its damaged assets at significant discounts, offset by growing provisions…but this has not proved sufficient, not least because the entry of damaged assets onto the balance sheet has been higher than the volume it has managed to sell through individual sales. (…).

Now, Popular is pursuing a strategy to segregate a substantial part of the real estate risk that it holds on its balance sheet (€6,000 million in book value), by placing it into a company that it will also endow with sufficient capital (around 20% of its liabilities). This capital will distributed free of charge amongst Popular’s existing shareholders in a way that will completely dissociate the entity from the transfer/sale. (…).

However, even once Popular has managed to eliminate a significant part of its real estate risk, the bank’s problems will not be over. That is reflected in the ERE that it is currently negotiating with the trade unions (which should be finalised by Sunday 6 November at the latest), which proposes the closure of 300 branches and a reduction in personnel of around 1,600 people through early retirement and voluntary redundancy packages. (…).

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

Popular’s New RE Company Will By Publicly Listed From Day 1

16 September 2016 – Expansión

The real estate company that Banco Popular wants to create from a significant portion of the foreclosed real estate assets that it has on its balance sheet, and whose shares will be distributed on a proportional basis amongst its shareholders, without any cost whatsoever to them, will be listed on the stock exchange from the day it is constituted, in such a way that its shares will have the necessary liquidity to enable their owners to do what they deem most appropriate with them.

At the moment, the heads of Banco Popular are focusing their activities on finalising the outstanding details of the design of the operation to create a real estate company, which still does not have a name, but which will incorporate real estate assets with a gross value of €6,000 million, chosen from the foreclosed assets that the bank owns, amounting to €11,140 million, and which form part of the entity’s balance sheet. And it also obtaining the necessary authorisations from the supervisors, the Bank of Spain and the National Securities and Markets Commission, as well as from the authorities at the Ministry of Economy, although the latter is not mandatory.

There is no specific timetable for completing the final phase of the process, but sources close to it indicate that it is hoped that it will become a reality during the first half of 2017, and that its launch will be announced sufficiently in advance to allow for a general shareholders’ meeting to be called, where the carve-out of the real estate company will have to be approved, along with the distribution of the shares amongst the bank’s shareholders, as if they were an extraordinary dividend.

The company will start trading on the stock market on the day of its constitution, when its shares will also be delivered to their new owners. It will have its own control and management bodies, which will operate completely independently of the bank. In this sense, a search will soon begin for a Chairman and CEO of the new company and the Board will be formed, almost in its entirety, by independent directors, with financing training and knowledge of the real estate sector.

It has not been ruled out the some of the bank’s main shareholders, who will also be main shareholders of the new company, may want to take a seat on the Board, given their shareholdings, but that is not something that is currently on the table.

The bank reported a foreclosed asset balance worth €11,140 million at the end of June, with a provisioning level that, at the end of this year, will amount to around 50% following the application of the results generated during the year and some of the recent capital increase amounting to €2,500 million, aimed at increasing the bank’s total provisioning level. This means that approximately half of these foreclosed assets (especially homes, offices and retail premises that have been completed and to a lesser extent those still in progress, and a small amount of land under development) will be included in the new company.

The company’s liabilities will be comprised of its capital, which the bank will disburse and transfer to the new shareholders; subordinated debt which Popular will purchase; and external financing for which, according to market sources, there is currently high potential demand, which will be determined on the basis of the return on the bonds issued and the relationship between capital, subordinated debt and the other financing. (…).

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

CNMC Approves Merger Between Merlin & Metrovacesa

30 August 2016 – Expansión

Authorisation from the CNMC / The merger will result in the creation of the largest real estate company in Spain, with assets worth almost €10,300 million. The group will compete with the large European Socimis.

On Friday, Spain’s National Commission for Markets and Competition (CNMC) approved the merger between the Socimi Merlin Properties (owner of Torre PwC in Madrid, pictured above, amongst other assets) and Metrovacesa, the real estate company controlled by Banco Santander, in an operation announced on 21 June. With the green light from the supervisory body, the door has been opened for the creation of a giant that will become the largest real estate company in Spain and one of the largest in Europe. The group will own assets worth €10,297 million in total.

The CNMC approved the deal on the basis that the barriers to entry into the tertiary real estate business (shopping centres, offices, logistics warehouses, retail premises and hotels) are not instrumental. And on the basis that this business, which comprises domestic and international companies, is quite fragmented in Spain, according to the body.

The analysis performed by the Commission focused on the relationship of control between Merlin, Testa – the real estate company that the Socimi purchased from Sacyr and in which it owns a 99.93% stake, and for which it plans to complete the integration of the remaining 0.07% within the next few months – and Testa Residencial, which is fully owned by Testa and therefore controlled indirectly by Merlin.

Three carve-outs

The operation will involve the carve-out of Metrovacesa into three lines of business, as revealed by Expansión on 22 June. One real estate line, one residential line and one line for assets under development and land.

The new Merlin will group together all of the real estate business and will acquire Metrovacesa’s tertiary assets, worth €1,672 million. To execute the operation, the Socimi will increase its share capital by 146.7 million shares, at a price of €11.40 per share.

The residential arm of Metrovacesa will carve out its assets from its rental housing business and move them into the newly created company Testa Residencial. The gross value of that company’s assets will amount to €980 million and it will also take over debt amounting to €250 million not transferred to Merlin as part of the tertiary business.

In terms of the third line of business, a newly created public company will take ownership of Metrovacesa’s remaining assets, in other words, the set of land and work in progress in the tertiary sector whose characteristics “do not fit with the profile defined by Merlin for its investments”. The total value of the assets of this third company will amount to €326.49 million.

The Boards of Directors of both companies will meet on 15 September to give their final approval of the operation.

In terms of the shareholder structure of the new Merlin and Testa Residencial companies, Banco Santander will be the largest individual shareholder of both, with stakes of 21.95% and 46.21%, respectively. Merlin will be left with a 68.76% stake in the tertiary business and Metrovacesa will have a 31.24% stake.

In the case of Testa Residencial, Metrovacesa’s shareholders will acquire 65.76% of the share capital.

Original story: Expansión (by María Sánchez)

Translation: Carmel Drake

Family War Between The Owners Of La Finca

24 August 2016 – Expansión

An open war is raging between members of the García-Cereceda family, owner of Procisa, the property developer of, amongst other assets, the exclusive La Finca business park in Madrid.

The carve out of the property developer and the subsequent entry of the US fund Värde has represented a new chapter in the battle between Susana and Yolanda García-Cereceda, both daughters of the founder of Procisa, Luis García Cereceda, who died in 2010, and both heiresses of the family empire.

As a result of this latest encounter, a ruling from Commercial Court number 11 in Madrid, on 18 August, decided to partially adopt the injunction requested by Mercedes López, the mother of Susana and Yolanda García-Cereceda, regarding the total carve out of Procisa.

The carve out of Procisa

The carve out was approved at a general shareholders’ meeting held on 26 July 2016. Specifically, the shareholders approved the decision to divide Procisa’s assets between La Finca Global Assets – owner of the carved out company’s real estate assets, which manages the leases of the offices and retail premises; La Finca Somosaguas Golf – which included ownership of a urban development area for luxury residential use that can be executed immediately, known as Casablanca – and finally, La Finca Promociones y Conciertos Inmobiliarios (owner of Procisa’s remaining assets and liabilities).

This carve out plan also involved the entry of the US fund Värde into the office business, as Expansión revealed in April.

This line of business is the group’s most profitable and it includes, amongst other assets, La Finca business park, located in Pozuelo de Alarcón, whose tenants include multinationals such as Orange and Microsoft.

Entry of Värde

Procisa, chaired by Susana García-Cereceda, had reached an agreement to sell 40% of its office business to the fund Várde, with Procisa retaining ownership of 100% of the residential business.

According to that plan, Susana García-Cereceda would lead the two areas. The entry of new members with experience and background in the sector was also planned, to complete the organigram of the new real estate company.

Nevertheless, this decision had not been approved by all of the company’s shareholders. Some voices against the negotiations argued that the complete carve out had not been referred for consultation to the Tax Authorities or other tax bodies to confirm the existence or otherwise of tax benefits in terms of exemption from Corporation Tax.

According to sources close to the opposing shareholders, if there are no tax benefits in terms of Corporation Tax, then the younger daughter of García-Cereceda, Yolanda, and her children, would be “seriously harmed”.

The legal ruling on 18 August requires the Commercial Registrar to suspend the inscription of the corporate operation agreed at the general shareholders’ meeting in July. This decision, therefore, hampers Värde’s entry into Procisa’s office business. (…).

According to the ruling, the suspension must remain in force until the Tax Authorities have issued their binding opinion regarding the existence or otherwise of tax benefits in terms of Corporation Tax. (…).

Original story: Expansión (by R. Arroyo)

Translation: Carmel Drake

Merlin Merges With Metrovacesa To Create RE Giant

22 June 2016 – El Economista

The Socimi Merlin Properties has informed Spain’s National Securities Market Commission (CNMV) that it has reached an agreement with Banco Santander, BBVA and Banco Popular to integrate Metrovacesa into its share capital and whereby create the largest Spanish real estate group in terms of assets and residential rental properties.

Under the terms of the agreement, the current Metrovacesa company will be split into three parts: one unit will hold the tertiary property business, which will be integrated directly into Merlin (including the employees); one residential arm, which will include all of the residential assets and which will be integrated into Testa, a subsidiary of Merlin; and a third structure, which will group together all of the land and developments under construction into a newly-created company.

After completing the integration, Merlin will, in turn, be split into two companies. One entity will hold the portfolio of tertiary assets (offices, shopping centres and logistics properties), which will begin life with a total surface area of 3 million sqm, an asset value of €9,317 million and the capacity to generate rental income of €450 million (p.a.). The other firm will hold all of the rental homes of the two companies, worth €980 million, which will generate revenues of around €35 million.

Santander will own 21.95% of Merlin

As a result of the integration, Santander, the current majority shareholder of Metrovacesa with a 70% stake, will hold 21.95% of Merlin’s share capital, as well as a 46.21% stake in Testa Residencial, the firm that will bring together all of the rental homes.

The agreement will give rise to the leading Spanish real estate group and one of the largest RE firms in Europe, given that it will hold assets worth €10,297 million in total, according to announcements from the two companies. The integration of the two companies comes just a day after Merlin completed its purchase of Testa from Sacyr and a few months after Metrovacesa, which is currently controlled by Santander, completed its own restructuring.

The operation is subject to approval by the respective General Shareholders’ Meetings of Merlin and Metrovacesa, which will likely take place in September, and will be executed in several phases through carve-outs and capital increases. (…).

Original story: El Economista

Translation: Carmel Drake

Metrovacesa To Carve Out Property Development Business

28 December 2015 – El Economista

Metrovacesa will hold an extraordinary shareholders meeting on Tuesday (29 December) to approve its division into two companies, so that it can segregate its entire land, development and house sale business, currently controlled by Santander, into a separate company.

This development activity will be transferred into a newly created company, called Metrovacesa Suelo y Promoción, which will take on assets and liabilities with a net value of €1,000 million.

This new company will have the same shareholders, with the same percentage stakes as Metrovacesa’s currently ownership structure. Therefore, in addition to Santander, which will control 72% of Metrovacesa, the other shareholders with be BBVA with a 19.4% stake and Banco Popular, with a 8% stake.

Meanwhile, the current Metrovacesa company will retain the the real estate business, in other words, it will continue to hold the portfolio of properties (with a combined surface area of 1.1 million m2) comprising office buildings, shopping centres and hotels, mainly located in Madrid and Barcelona, which are operated under lease agreements.

This operation to separate the businesses into different companies forms part of the debt restructuring programme that the real estate company is working on ahead of the “significant maturity” of its liabilities, primary linked to the real estate developer business, which fall due in the third quarter of 2016.

The ultimate goal is to capitalise this debt, strengthen the company’s equity and thereby guarantee the future viability and profitability of the two businesses, according to the company’s comments in its carve-out plan.

Segregation process

The division of the current Metrovacesa entity into two companies will take place through a process involving three successive capital increases, which will be approved at the shareholders’ meeting on Tuesday.

The first increase will be non-monetary, but will involve the shareholder banks contributing certain real estate assets to the company. The second increase will involve the capitalisation of the debt held by these entities for conversion into new shares.

Meanwhile, the third increase will be monetary and will be aimed at the minority shareholders who still hold shares representing 0.073% of Metrovacesa’s share capital, so that their stakes are not diluted.

Once these capital increases have been completed, the new Metrovacesa Promoción y Suelo company will proceed make a block acquisition of all of the assets relating to this business from Metrovacesa.

This final carve-out step will be ratified at another extraordinary shareholders’ meeting, scheduled for 12 January, when the board of the new company will also be appointed.

In this way, Metrovacesa is embarking upon a new phase in its history, years after Santander and other banks took control of the real estate company, by foreclosing the debt held by its former owners, and excluded it from the stock exchange.

Original story: El Economista

Translation: Carmel Drake

Metrovacesa Sets Up A ‘Land Bad Bank’ To Carve Out Its Residential Business

8 July 2015 – El Confidencial

Make someday today (‘Algún día es hoy’). The slogan of Metrovacesa’s new marketing campaign is a declaration of intent regarding the direction that the real estate company has decided to take now that Rodrigo Echenique has taken over as the new Chairman of the company.

In this context, and having closed the refinancing of the company, the Director has set the objective of restoring the company to its past splendour and consolidating its position as one of Spain’s largest real estate companies, capable of competing head to head with Colonial and with the large socimis, such as Merlin and Hispania, which are now establishing themselves amongst the main landowners in the country.

The first step of this ambitious strategy entails a move that the experts in the sector have been pondering for some time…and which the company is already working on: the creation of a bad bank for its land assets. Sources at Metrovacesa say that although the option is already on the table, a final decision has not yet been taken.

The real estate company’s plans involve making a similar move to the one implemented by Colonial five years ago, when it separated its land and development assets and placed them into a newly created company, called Asentia. It was the beginning of an ambitious clean-up plan that was completed last year, when the subsidiary was sold to several funds.

In the case of Metrovacesa, the idea is to separate the residential and land businesses, according to sources close to proceedings, to focus on growing its property business, especially the buildings located in prime areas, which represent 75% of its turnover. The thorniest point of this strategy are the provisions that will likely have to be made to carry out the carve-out, which will be offset when this business is sold, since that will allow it to deconsolidate all of the associated debt. (…)

In its results for 2014, Metrovacesa already included several provisions for losses on certain assets and valued its entire portfolio at €4,800 million. The portfolio comprises: 8 shopping centres and 2 more that are being constructed (one is scheduled to be opened this year and the other has been placed under review); 8 hotels in operation, as well as the hotel that Barceló will manage in the Torre de Madrid; and 34 office buildings, the jewel in the group’s crown, which have a combined gross leasable area of 520,000 m2, in Madrid and Barcelona.

In terms of housing, the real estate company owns 35 developments across ten provinces (…), whilst in terms of land, it is currently marketing plots to individuals in another half a dozen municipalities (…).

But the bulk of the group’s land business comprises developments that are underway in Alicante, where it plans to construct 300 homes in an urban development covering 48,000 m2; Sevilla, with Project Palmas Altas Sur, a plot measuring 679,223 m2 where 2,870 homes will be built; Tarifa, where it wants to build la Ciudad del Surf, with 600 hotel beds, 7,500 m2 of retail space and up to 250 homes; Hospitalet del Llobregat, close to Barcelona, comprising almost 160,000 m2 of buildable space for tertiary use; and Madrid, where the company is trying to obtain permits to build a residential development on the site of the former Clesa factory.

Following the capital increase approved last spring to capitalise the group’s bank debt, the shareholders of Metrovacesa currently include Santander, which holds a 58.67% stake, BBVA (19.42%), Banco Sabadell (13.85%), Popular (7.99%) and other small investors (0.071%).

Once the residential business has been carved out, the entities will have to agree on the best way to maximise the value of their shareholdings, from a range of possibilities that have been put on the table. These include: creating a hotel Socimi, finding a partner to buy some of the capital and listing on the stock market.

Original story: El Confidencial (by Ruth Ugalde)

Translation: Carmel Drake