27 August 2018
Though it has not yet concluded its first real estate transaction since its rescue, the Sociedad de Garantías Recíprocas (Society of Reciprocal Guarantees – SGR) is already preparing a second sale, looking to unload additional real estate assets. The financial institution, saved from bankruptcy by the current municipal council with 200 million euros from the FLA (liquidity fund), is concluding the sale of an important portfolio made up of loans and real estate that will allow it to end the year with debts of 15 million euros, well below its previous €400 million that had nearly pushed it into bankruptcy.
Within the portfolio are real estate assets valued at 26 million euros that SGR had intended to place with the Generalitat as part of the restructuring process. According to the original plan to save the institution, prepared and executed by the Valencian Institute of Finance (IVF), the Valencian administration had to stay in the operation to comply with its requirement to perform due diligence in the recovery of public resources. That requirement was a part of the €200 million guarantee that the Generalitat concluded in 2013 – or the EU could consider the guarantee as illegal state aid.
Now, however, those assets will no longer go to the Generalitat. The entirety of that portfolio, consisting mainly of urban land or lots, industrial buildings (23%), buildings (11.5%), rural lands (11%) and building plots (8.5%) plus a part of the assets that remain in the balance of the SGR will be subject to a second sale, once the sale of the first real estate portfolio is formalised.
According to Manuel Illueca, general-director of the IVF and president of the SGR, the composition of this second package is “attractive” for investors, since the high percentage of land included in this portfolio “may be better placed on the market now that the real estate market has once again taken off.”
The director of the IVF highlighted the market’s favourable response to the placement, which is why it is already preparing the second phase of asset disposals before signing the first, something that will happen in September. The potential investors include international investment funds and, although exact nature of the portfolio is still to be defined, he estimated that it would be concluded “within the range of typical discounts of this type of operation.”
“We needed to sell because we had to achieve a net positive asset ratio over a period of three years. The market has been receptive, and we have been able to reduce our debt. We are now going to carry out a second operation to further advance the restructuring process. The expectation for financial institutions that operate with the SGR today, is a full recovery of the amounts owed,” says Mr Illueca.
When the first sale of assets ends, the solvency ratio of the SGR will rise to 14.5%, with net senior debt at approximately €15 million, compared to the €400 million it had before. Apart from that, there are the €40 million in subordinated loans it has with the entities, the director of the IVF explained.
The first operation, in which SGR is being advised by Alantra, includes 793 properties that range from industrial warehouses, homes, parking spaces and land, stemming from a time that saw “endless guarantees.” The expectation, when the operation was announced, was to unload the equivalent of 75% of the properties on its balance sheet, raising 30 million euros. The net book value of the portfolio amounts to €44 million, while the assessed value reaches €83 million.
In 2016, SGR already tried to raise 180 million euros with its ill-fated Citrus Project, a portfolio of executed guarantees of more than 800 million euros, with foreclosed assets and loan losses initially valued at €82 million for which it expected to obtain €170 million.
After the project failed to move ahead, as the best offer received was only €65 million and not even for the entire portfolio, the new head of the IVF opted to move ahead with the execution of the €200-million guarantee, which expired in 2018, to try to sell the assets. The operation aimed to get more time to find a better solution on the market, as has occurred.
After the early repayment of the 200-million-euro guarantee in favour of the Generalitat, negotiated with the group of banks that already participated in its rescue in 2013, SGR’s outstanding debt with the financial institutions fell to 94 million euros: €54 million of senior debt and another €40 million in an unsecured participative loan from the municipal council.
Original Story: Valencia Plaza – Xavi Moret
Translation: Richard Turner