Faced with dim prospects at home, Spanish builders go abroad

10th October 2010, Comments 0 comments

Spanish builders are looking abroad for work to shield themselves from the collapse of a decade-long property boom that has left hundreds of thousands of unsold homes across the country.

In perhaps the most high-profile case, Sacyr, one of Spain's top groups, is leading a massive expansion of the Panama Canal that will double its capacity and accommodate a new generation of super-size container ships.

Nearly 2,000 people are working on the project, one of the world's largest and most lucrative, a number that will swell to 7,000 when construction is at its peak, a Sacyr spokeswoman said.

It is the largest project for Sacyr outside of Spain since the company was founded more than two decades ago, she added.

Sacyr's consortium won the three-billion-dollar (2.15-billion-euro) contract last year, beating two other bids, including one led by ACS, Spain's largest construction firm.

Sacyr's revenues from overseas activities rose to 4.62 billion euros last year from 4.28 billion euros and are expected to rise further this year.

Mauro Guillen, a management professor at the University of Pennsylvania who wrote a book about the rise of Spanish multinationals, said the groups began moving abroad, as well as into other areas like waste management, in anticipation of the property market cooking down at the end of 2007.

"They realised that construction is a cyclical business and that they needed to diversify," Guillen told AFP.

In the second quarter, the order books of Spain's six largest builders -- ACS, Acciona, FCC, Ferrovial, Sacyr and OHL -- were almost evenly split between projects at home and abroad, totalling 26.9 billion euros against 25.9 billion euros, the El Pais daily reported last month.

That contrasts with the situation during the last quarter of 2007 when the six firms had overseas projects worth 13.9 billion euros, less than half of the 33.3 billion euros in projects in the pipeline in Spain.

The growing importance of the foreign market was highlighted last month when ACS launched a 2.76-billion-euro all-share takeover bid for German rival Hochtief just as Germany's economy is rebounding.

Spanish builders have cast a wide net.

FCC has signed contracts this year to build a highway in Slovakia, a railroad in Algeria and a media broadcast centre for the 2012 Olympic Games in London, among others.

Last month, a consortium led by Acciona won a 1.1-billion-euro contract to build, maintain and operate a traffic tunnel in Brisbane, its first contract in Australia.

The construction sector enjoyed a massive boom in Spain in the decade through 2007 as the cheap credit that came with the arrival of the euro single currency fueled a building frenzy and an unprecedented economic upturn.

But the global credit crunch at the end of 2008 hastened a correction, plunging Spain into its worst recession in decades.

Now builders face bleak prospects at home.

"The decline in construction activity in Spain will be permanent although I can't say that is necessarily bad. The problem now is how to manage it," OECD secretary general Angel Gurria said last week during a visit to Madrid.

The International Monetary Fund estimates there are some 700,000 unsold housing units which will take two to three years for the market to digest.

Prime Minister Jose Luis Rodriguez Zapatero's socialist government initially responded to the economic downturn by pouring billions of euros into infrastructure projects.

But as the economic downturn dragged on and a budget surplus was transformed into the third-biggest eurozone deficit after Greece and Ireland last year, it suspended dozens of road and rail projects.

© 2010 AFP

0 Comments To This Article