The Pace of NPL Sales Falters in Spain

6 December 2019 – Spanish banks have reduced their pace of sales of NPLs this year, as CaixaBank, Sabadell, Bankia, Bankinter, Unicaja and Liberbank unloaded a total of just 4.9 billion euros in the first nine months of 2019. Those financial institutions wrapped up the quarter with €35.006 billion of such assets on their books, 12% less than at the beginning of the year. In contrast, Spain’s banks in sold off €90 billion in non-performing loans and REOs in 2018.

Standard & Poor’s, on the other hand, published a report in February estimating that Spain’s banks should rid themselves of €30 billion in NPLS between 2019 and 2020. That figure would have lowered their collective NPL ratio to below 4% compared to 7% at the time. Both S&P and Spain’s central bank also argued that the banks needed to increase the pace of sales to prepare for a potential slowdown in the economy.

Original Story: El Economista – Eva Díaz

Adaptation/Translation: Richard D. K. Turner


S&P Increases Colonial’s Credit Rating to BBB+

18 October 2018 – Expansión

Standard & Poor’s has increased the rating assigned to Colonial from BBB to BBB+ within the investment grade category.

The credit agency has ruled out possible revisions of that rating by assigning a stable outlook for the company.

Colonial managed to increase its rating after reaching an agreement with Qatar, whereby the sovereign fund of that country became the company’s largest shareholder by acquiring 20% of its share capital through an exchange of shares.

By virtue of that operation, the Spanish Socimi consolidated its controlling position in its French subsidiary Société Foncière Lyonnaise (SFL), given that Qatar granted it the 22% stake that it owned in that company, allowing it to increase its share of the capital to 80%, in exchange for shares in the Spanish real estate company proceeding from a non-monetary capital increase.

S&P also reviewed Colonial’s rating upward after the Socimi completed the merger of another Socimi Axiare and closed the sale of a portfolio of offices owned by that company which did not fit with its business strategy.

Original story: Expansión 

Translation: Carmel Drake

Another RE Bubble? S&P Forecast House Price Rises Until 2020

3 August 2017 – Cinco Días

After years of crisis, the Spanish real estate market is now growing again year after year. That is according to analysis prepared by Standard & Poor’s, which estimates that house prices will rise by 4% in 2017 and by 4.5% in 2018, with respect to the previous year.

The report also forecasts a reduction in inflation. Currently, prices are rising at 1.5% p.a. but that figure is expected to decrease to 1.3% in 2018. Moreover, economic growth in Spain is expected to lead to a reduction in unemployment, down to 15.7%. And that percentage is forecast to fall to 13.6% by 2020.

Despite the positive outlook, the risk measurement entity warns of the risk that Brexit, the United Kingdom’s exit from the European Union, could have, given that currently, Brits account for 19% of foreign house buyers in Spain.

House sales are growing to both domestic and international buyers. In 2016, the total volume of transactions rose by 13.7% to reach 404,000 homes sold in Spain. During the 12 months to April 2017, 416,000 homes were sold, up by 11.8%.

Sales to foreigners grew by 13.8% in 2016. In total, 53,500 of the 404,000 homes purchased were transferred into foreign hands. The main buyers were British, who accounted for 19% of purchases by foreigners; followed by the French (8.05%) and Germans (7.69%). Moreover, the report points out that the so-called golden visas, which grant residence permits to those foreigners who invest more than €500,000 in real estate, excluding taxes, have led to an increase in acquisitions by Russian and Asian citizens.

Standard & Poor’s also expects that the European market will continue to grow. The ratings agency forecasts that house prices will rise in many of the neighbouring countries, such as Germany, where they are expected to increase by 6% next year. Nevertheless, in the main countries that the buyers in Spain come from, in other words, the United Kingdom and France, prices are expected to decrease by 1% or remain stable, respectively.

This growth in sales has meant that house prices have not slowed down. According to the real estate appraisal company Tinsa, house prices rose by 3% during the second quarter of 2017 compared to June last year. Currently, according to the same firm, the average price of homes per square metre in June 2017 amounted to €1,245/m2, well below the peaks of 2007 (€2,047.69/m2).

Sources at Standard & Poor’s expect that the Spanish economy will continue to grow in 2017, by 3% for the third consecutive year. The creation of 2 million jobs since 2013 and the increase in exports are the main drivers of confidence that the firm is using to justify the rise in house prices, although it also warns of the need that Spain has to reduce its deficit, which is one of the highest in the Eurozone.

Ultimately, economic growth will be reflected in real estate growth over the next three years. The slow reduction in the stock of housing accumulated during the years of the bubble and the slow, albeit inexorable, rise in interest rates (the first rise is expected to happen in 2019) will limit the rise in house prices. Standard & Poor’s also questions the effect of Brexit on the real estate market.

Original story: Cinco Días (by Fernando Cardona and Eduardo García)

Translation: Carmel Drake

Hispania Gets Ready To Debut On The Bond Market

17 January 2017 – Cinco Días

The Socimi Hispania is planning to join the bond issues undertaken in recent months by other major players in the sector, including Merlin and Colonial, with the aim of diversifying its financing. To this end, it has already started to sound out the ratings agencies. Its objective is to obtain an investment grade rating for its securities.

Hispania Activos Inmobiliarios is studying the option of debuting on the capital markets with a bond issue to refinance some of its gross debt, which currently amounts to €631 million, according to sources familiar with the operation.

The Socimi has already started the process to request a rating from the ratings agencies, with the aim of launching the operation during the first few months of the year.

The firm has made contact with the three large players –Standard & Poor’s, Moody’s and Fitch–, although it will not need a rating from all of them, rather from just one of them or two at most. The aim is to achieve an investment grade rating – BBB – or Baa3 – , which would allow it to debut on the capital markets at a reasonable cost.

Hispania, in which the magnate George Soros owns a 16% stake, will thereby join the other bond issues undertaken recently by other companies in the sector.

The Socimi Merlin Properties – which forms part of the Ibex 35 – went to the market in October with a 10-year bond placement amounting to €800 million. The current yield on that debt is 2.3%. It has a Baa2 rating, which is one notch above the limit that separates junk bonds from investment grade securities, according to Moody’s nomenclature. Moreover, Merlin has assumed another €1,550 million in bonds from two bond issues made by Metrovacesa, with which it completed its merger at the end of October. (…).

Hispania’s current debt has an average maturity period of 7.2 years and €497 million of the balance is due to be repaid from 2022 onwards. The current average debt cost is 2.7%. Hispania also has hedges in place to avoid any surprises if interest rates rise. 96% of its debt is guaranteed. (…).

In general terms, the optimal balance sheet structure of these types of companies rests on three pillars: bank debt with an additional guarantee – in the majority of cases, properties from the company’s portfolio – , unsecured financial loans and listed debt.

With the proceeds that it raises from the bond issue, Hispania plans to repay some of its current debt balance. It would thereby take advantage of the good conditions in the market with liquidity and the environment of low interest rates. This company, created in 2014 under the special tax regime for Socimis, is led by Concha Osácar and Fernando Gumuzio, and is managed by Azora. In addition to Soros, its shareholders include the funds Fidelity, FMR, Tamerlane and BlackRock.

Hotel specialist

Hispania’s portfolio of real estate assets closed the third quarter of 2016 with an appraisal value of €1,680 million. The Socimi owns 36 hotels in Spain with 10,407 rooms. 68% of the value of those assets is located in the Canary Islands and 64% is managed by Barceló, with which it has signed a strategic alliance. The Socimi recently purchased three properties in the Cala San Miguel in Ibiza (pictured above) for €32 million.

Original story: Cinco Días (by A. Simón and R.M. Simón)

Translation: Carmel Drake

Moody’s Assigns Merlin An Investment Grade Rating

19 October 2016 – Expansión

The ratings agency Moody’s has granted Merlin a Baa2 rating, in other words, investment grade. The agency Standard & Poor’s (S&P) also assigned the Socimi’s debt an investment grade rating in February. Merlin is just a few days away from closing its merger with Metrovacesa, which will result in the creation of the largest real estate asset company in Spain.

This rating represents a boost for Merlin’s plans to return to the capital markets soon with a new bond issue. It placed bonds amounting to €850 million in April.

With this rating from Moody’s, the Socimi has become the highest rated Spanish real estate company. The agency highlighted the position of leadership that the Socimi will have in the Spanish market following its merger with Metrovacesa, as well as the diversity of its assets.

Original story: Expansión

Translation: Carmel Drake

Santander & BNP Put €319M Of Mortgages Up For Sale

19 October 2016 – Expansión

Unión de Créditos Inmobiliarios (UCI), the financial credit company owned jointly by Santander and BNP Paribas, has packaged up 3,850 residential mortgages in Madrid, Andalucía and Cataluña to sell them in the market. To this end, it has structured a securitisation fund amounting to €420 million, of which €319 million will be placed with final investors, a tranche that has been assigned a high quality AA rating by Standard & Poor’s.

It is the third operation that the entity has undertaken in less than a year, as part of the Prado series. Given that UCI is regarded as a special lender, it is not able to approach the European Central Bank in search of financing, and so it is taking advantage of the reactivation of the securitisation market. In total, it has launched three securitisation funds amounting to €1,410 million during this period and a large part of the debt has been sold to investors. On this occasion, UCI is paying competitive prices, of 65 basis points above 3-month Euribor.

According to financial sources, the types of clients involved in this specialist kind of mortgage transfer tend to be those who are unable to access a normal bank, in other words, those who have more risky profiles. But in this securitisation, as S&P has highlighted, the loans are more robust than in standard securitisations because they have lower loan to values (loan amount over appraisal value).

Original story: Expansión (by D. Badía)

Translation: Carmel Drake

S&P Confirms Merlin’s Investment Grade Rating

21 April 2016 – El Mundo

Standard & Poor’s (S&P) has ratified the BBB rating that it assigned to Merlin Properties back in February, after the Socimi successfully closed its recent €850 million bond issue, according to reports from the company.

The ratings agency considers that Merlin’s investment grade reflects the “optimal risk profile” of the Socimi, which is further supported by a portfolio of property assets worth around €6,100 million.

The firm also assigns a stable outlook to the rating for the company led by Ismael Clemente, because it considers that its “large and diversified” property portfolio constitutes a “source of recurring revenue generation”.

“The assets are also well located, which allows the company to benefit from the recovery in the real estate sector that Spain is currently enjoying”, added the ratings agency.

The ratings firm has also assigned the same BBB rating to the €850 million bond issue that the Socimi recently placed. Through this operation, the company will restructure one tranche of the debt that it inherited from Testa when it acquired the company from Sacyr.

Moreover, S&P leaves the door open to a possible increase in Merlin’s rating, in the event that the Socimi adopts a “more conservative” financing policy, however it also warns of a downgrade in the event that its debt exceeds the threshold of 50% of the value of its assets.

Original story: El Mundo

Translation: Carmel Drake

Merlin Debuts On Capital Markets With €850M Bond Issue

18 April 2016 – Invertia

The Socimi has debuted on the capital markets with this operation, through which the firm seeks to refinance some of the debt it inherited from Testa.

Specifically, Merlin explains that this debt issue fits within its strategy to reduce the debt it holds after it completed the refinancing of the debt relating to Testa, the real estate company that it acquired from Sacyr, at the end of 2015 .

At that time, the Socimi signed a loan for €1,700 million with ten overseas banks, which was structured into two tranches of €850 million each, one of which is due to expire in December 2017 and which will be repaid through the bond issue.

Merlin is debuting on the debt market after it entered the Ibex 35 at the beginning of this year and managed to achieve an investment grade rating from Standard & Poors, which awarded it a BBB rating.

As such, the debt issue is taking place whilst the Socimi Merlin completes its purchase of the remaining 22% stake of Testa’s share capital, which is still owned by Sacyr, in an operation that must be closed before the end of June, as established in the agreement that the two companies signed last year. The ultimate goal of the company is to merge the two companies to create the largest listed real estate firm.

Original story: Invertia

Translation: Carmel Drake

Has Spain Learnt Anything From The RE Crisis?

17 September 2015 – Mercado Financiero

Standard & Poors published a report at the end of 2007, which predicted a 22% decline in the construction sector over the next 3 years in Spain. A year later, the decrease in the number of job offers in the real estate and construction sectors amounted to 57%.

In the years before the crisis, Spain shared in Europe’s prosperity, where belonging to the middle class was an outmoded concept. Buying a new house, changing car and travelling constituted the basic premises of an economic model dominated by the real estate sector.

During the decade between 1997 and 2007, the construction sector drove more than half of the country’s economic growth, and accounted for 23% of total employment, according to a study by Rafael Doménech, Chief Economist for Developing Countries at BBVA Research.

Specifically, in 2007, construction accounted for 21.7% of the Spanish economy’s GDP. Seven years later, in 2014, the weight of the sector had decreased by almost half, to account for 10.5% of GDP.

No one ever talked about the risk premium; the word eviction was effectively invented in 2008; and purchasing property was a very profitable business, since prices always increased.

Over-valued assets?

Excess demand gradually drove up the price of properties. According to the Bank of Spain, at the end of 2008, the price of a typical home (measuring 93.75 m2) was 6.5 times greater than the gross disposable income of an average household.

That magnitude dissipated during the second quarter of 2008 when house prices began to fall and the declining trend continued until the middle of 2014, when the first price rise was recorded after 24 quarters of decreases.

But the issue goes much further than that. During the years before the crisis, the Spanish economy was characterised by the following: a high inflation differential with respect to the Eurozone; a lack of competitiveness; and the high price of real estate assets that encouraged their purchase. Pillars of growth that IESE described as “unsustainable”.

Growth is returning

In 2015, seven years after the crisis began, the positive macroeconomic outlook seems to be indicating the end of the recession. Such trends are also being seen in terms of house prices, which despite the sharp downward trend, have now reversed. With the 4% increase experienced in Q2 2015, house prices have now recorded five consecutive quarters of YoY increases.

In this context, what we should really be asking ourselves is: Are we at the beginning of a new real estate bubble? Rafael Doménech…says that the spike in house prices during the second quarter of the year (a 4% YoY increase) is “the typical rebound following an over-reactionary adjustment”. Moreover, he is certain that the market is not returning to its old tricks again.

Meanwhile, the Head of Research at the Bank of Spain, José Luis Malo de Molina, says that “the adjustment in the housing sector has, in theory, come to an end” and that “the outlook points to the start of a possible recovery”. Likewise, Malo de Molina believes that the recovery in transactions is leading to an increase in the number of permits for the construction of new homes. (…).

In any case, the Spanish economist Santiago Niño Becerra argues that Spain will never again construct more homes than in France, Germany and Italy put together, because of easy credit fuelled by cheap money. “I think that the future of the real estate sector will centre around the renovation and conversion of properties for rent, together with very carefully planned construction”.

Original story: Mercado Financiero

Translation: Carmel Drake

S&P Assigns Investment Grade Rating (BBB-) To Colonial

13 May 2015 – El Mundo

Within the next few months, Colonial will launch its first bond issue amounting to more than €1,000 million.

The company is seeking to refinance some of its debt (€1,040 million, i.e. 40.5% of its total liabilities).

The company Colonial has obtained a ‘BBB-’ rating from Standard & Poors, making it the first Spanish real estate company to achieve an ‘investment grade’ rating. It intends to use (that rating) to debut on the capital markets in the coming months with a bond issue of more than €1,000 million.

Through this operation, the real estate company, in which the Villar Mir Group holds a stake, is seeking to refinance €1,040 million of debt, i.e. 40.5% of the company’s liabilities.

Specifically, it is seeking to take advantage of the conditions in the market to extend the maturity period (of its debt) and reduce its financing costs, according to market sources.

Colonial has engaged Morgan Stanley, BBVA, Banco Sabadell, CaixaBank, Crédit Agricole, ING and JP Morgan to coordinate the operation.

The company will begin a ‘road show’ within the next few days in the main European markets, to analyse demand for the up-coming launch of what would also be the first bond issue by a Spanish real estate company.

Colonial will specify the amount and other terms and conditions of the operation once it has completed the so-called ‘demand evaluation’ phase, according to a communication made to Spain’s National Securities Market Commission (CNMV).

Phase of growth

The real estate company will therefore debut on the capital markets at the same time as it embarks on its new growth strategy, having completed its restructuring, refinancing and recapitalisation plan at the beginning of last year, through which it reduced its debt and opened up its share capital to new shareholders.

As part of the new phase, Colonial has expressed its interest in Realia and has also said that it would be willing to evaluate a possible purchase of Testa, the real estate subsidiary of Sacyr, in the event that the group decides to sell the company rather than list (some of) it on the stock exchange.

These corporate movements are taking place during the current period of recovery in the real estate sector in Spain, after several years of decreases – the recovery has attracted interest from international investors.

Colonial owns a portfolio of office buildings for rent in the prime business districts of Paris, Madrid and Barcelona, which together have (a surface area of) almost one million square metres. Through this debt restructuring program, the real estate company is seeking to ensure not only that its assets are ‘prime’, but also its liabilities.

Original story: El Mundo

Translation: Carmel Drake