Colonial shares nosedive as Dubai fund fails to get agreement on offer

21 March 2008

MADRID – Colonial lost almost a quarter of its market value on Thursday after the sovereign wealth fund Investment Corporation of Dubai (ICD) failed to convince the creditors of the debt-laden Spanish property company of the merits of its buyout offer.

Colonial’s share price closed down 23.53 percent at EUR 0.78 after falling by almost 30 percent to an all-time low of EUR 0.70. The operator of the exchange was forced to increase the maximum permitted daily fall in the stock due to an avalanche of sell orders.

Prior to Thursday’s battering, Colonial had already lost 48 percent of its market value since the start of this year.

ICD had conditioned its offer of about EUR 1.9 billion for Colonial’s rental business to its acceptance by the property company’s creditors. In a statement late Wednesday to the National Securities Commission (CNMV), ICD said it had failed to secure the go-ahead of the banks.

The Dubai fund, however, left the door open for a possible agreement in the future. "If there is any possibility beyond the terms foreseen […] of reaching an agreement with regard to Colonial, ICD would consider that possibility," the fund said.

However, in a later statement to the CNMV, core Colonial shareholders Luis Portillo and the Nozaleda family, who had agreed to tender their combined 52-percent to ICD, were much more pessimistic. "There are no expectations of [an] agreement being reached," they said.

Portillo and the Nozaledas said they would continue to look for "satisfactory solutions" for Colonial and the rest of its shareholders.

ICD wanted Colonial creditors to agree to a refinancing of the company’s debt, estimated at some EUR 9 billion. These included banks that helped finance the purchase of the stakes of Portillo and the Nozaleda family, a group of foreign banks, including Royal Bank of Scotland and Goldman Sachs – which granted Colonial a EUR 7.2-billion syndicated loan – and local commercial and savings banks.

ICD’s offer of USD 1.19 per share had received the blessing of Colonial’s management board. The complex deal required Colonial’s land and real estate division to be spun off into a different companies and handed over to its existing shareholders before the Dubai fund tabled a full takeover bid for the remaining rental business.

Colonial’s assets have been valued at EUR 9.2 billion. The property company also has a 15-percent stake in Spanish builder FCC valued at about EUR 800 million.

Colonial’s problems mounted toward the end of last year when it lost more than 40 percent of its market value as the credit crunch sparked by the US subprime crisis compounded a slowdown in the Spanish housing market, which had enjoyed a decade-long boom.