Biggest-ever corporate failure rocks Spain

16th July 2008, Comments 0 comments

Property firm Martinsa-Fadesa files for bankruptcy protection and seeks court protection from creditors.

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.

The director general for architecture and housing policy, Anunciación Romero, said the government would ensure Martinsa-Fadesa complied with its obligation to finish building homes it had pre-sold.

Martinsa over-extended itself by taking on debt to purchase domestic rival Fadesa in 2007 for EUR 4 billion before the US subprime crisis broke and the local housing market crashed. Home sales in the first half of this year dropped 31.8 percent.

The company said in a statement Tuesday it had assets valued at EUR 10.8 billion as of June 2008 in the form of golf courses, a land bank and unsold houses.

Martinsa-Fadesa owes money to over 40 domestic and foreign banks. Some of the most exposed are local savings banks Caja Madrid and La Caixa which lent the property firm EUR 1 billion and EUR 700 million, respectively. Caja Madrid said yesterday it had made a provision of EUR 250 million to cover its exposure to Martinsa-Fadesa, while La Caixa said it had set aside EUR 192 million.

Banco Popular, Spain's third-biggest bank, said it had made a contingency fund of EUR 100 million for potential losses from loans to made to the property company.

The Spanish stock market fell heavily Tuesday, with the blue-chip Ibex 35 losing 2.55 percent. Banco Popular's stock shed 5.63 percent.

Trading in Martinsa-Fadesa shares remained suspended. The company lost half of its market value in two sessions prior to the trading halt.

The property sector was the worst hit, with Colonial's shares down 11.63 percent, Renta Corporación off 15.69 percent and Urbas 14.29 percent.

[El Pais / A. Sim / Expatica]

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