16 July 2008

MADRID - Debt-laden property firm Martinsa-Fadesa filed for bankruptcy protection on Tuesday as creditor banks, workers and the government began to count the costs of the largest company failure in Spanish history.

Martinsa-Fadesa, which owes some EUR 7 billion, including EUR 5.2 billion in bank debt, filed for administration with a commercial court in A Coruña, in the north of the country.

The move came after it failed to raise EUR 150 million as one of the conditions for a EUR 4-billion refinancing package agreed with creditor banks.

Martinsa-Fadesa is by far the largest of Spain's real estate companies to hit the wall since 2007 as a decade-long property boom rapidly came unstuck due to the global credit crunch.

The company has also come to symbolise the excesses of an economic bonanza built largely on bricks and mortar, which has now left the country at risk of slipping into recession.

A quarter of Martinsa-Fadesa's workforce - some 230 employees - are now facing the sack as the company begins the process of trying to restore the firm to financial health by selling off assets to repay creditors.

The government, which has come under heavy criticism for its handling of a sharp downturn in the economy, reiterated yesterday it would not bail out real estate firms. The state-run Instituto Oficial de Crédito had rejected Martinsa-Fadesa's request for the EUR 150-million loan it needed to stave off receivership.

The opposition Popular Party demanded Tuesday the government reveal if it knew about the financial crisis Martinsa-Fadesa was going through prior to general elections this year on 9 March, and whether it had offered the property firm any "guarantees."

"What we have to do now is to move to ensure [Martinsa-Fadesa's crisis] is the least damaging possible for its workers, suppliers, and for the country's economy as a whole," Housing Minister Beatriz Corredor said.

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