21 November 2016 – Expansión
Popular has taken a new step in the constitution of its real estate company, a key project in its attempt to try to recover investors’ lost confidence, which it hopes to have ready by the first quarter of next year. According to financial sources, Deutsche Bank has reached a preliminary agreement to finance this company.
In total, up to six banks and funds have expressed interest, which does not mean that they will all end up participating. However, according to sources close to the process, “these players are being offered provisional agreements to invest between €200 million and €500 million”. The same sources state that they have also held talks with the giants Apollo and Cerberus, who declined to comment about the process.
Popular wants to transfer assets with a gross value of €6,000 million, primarily finished homes, to the new entity. Specifically, for this reason, executives at the entity feel uncomfortable that the project is being referred to as the bad bank in financial circles because it will also incorporate high quality assets.
On the liability side, the company will initially have share capital contributed by the bank, which will then be distributed amongst all of its shareholders in the same proportion as their existing shareholdings. In addition, the company will issue subordinated debt, which Popular will subscribe to, as well as senior debt.
It is expected that the banks and funds that want to participate in the financing will do so through this latter (senior debt) tranche.
According to a report from Bank of America Merrill Lynch last Thursday, in which the firm reduced the target price from €1.30 to €0.75, the company’s liabilities will be constituted as follows: the share capital will amount to €975 million, whilst the senior debt will amount to €2,200 million and the subordinated debt will amount to €1,400 million. The US bank’s analysts predict that the players who finance the senior debt tranche will request an IRR of 10%.
Deutsche Bank, which together with EY, is acting as financial adviser to the project, as well as Apollo and Cerberus, have been active in the Spanish real estate market in recent years. The former acquired two portfolios from Bankia, between the end of 2015 and this summer, comprising loans, both real estate and property developer related, worth almost €1,000 million. Meanwhile, Apollo has acquired several portfolios (it recently bought a hotel portfolio from CaixaBank) and controls the former platform (servicer) of Santander, Altamira. And Cerberus, which hired the former CEO of BBVA, Manuel González Cid in 2014, owns the real estate arm of Bankia, now Haya Real Estate, and the Cajamar platform.
Assets on the balance sheet
Popular has damaged assets on its balance worth €33,000 million before provisions, which amount to another €15,000 million. According to Bank of America, this high volume (of assets and provisions) eliminates many potential interested parties from a merger. Besides constituting this company, Popular also wants to accelerate the sale of these assets through both its wholesale and retail channels.
The bank earned €94.3 million during the first nine months of 2016, 66.1% less than during the same period in 2015. Nevertheless, its banking activity (when separated out from its real estate business) generated profits of €817 million.
Original story: Expansión (by D. Badía)
Translation: Carmel Drake