Spain struggles to pull together multibillion euro highway bail-out

 

The Spanish government is working against the clock to reach a deal with builders over a multibillion euro bail-out for nine bankrupt motorways which could directly hit the country's deficit.

Talks that have dragged on for months were abandoned at the end of last year, but have now resumed in the hope of finding a solution before the first of the companies starts liquidation proceedings in about a month.

Negotiations are focused on how to create a state-owned holding company to manage the motorways with the minimum impact on state coffers and without it constituting state aid.

"We are still working with the government on this," said Julian Nunez, the chairman of Seopan, an association that represents Spanish builders like ACS and OHL, many of which won concessions to build toll roads from the government during Spain's construction boom.

"The solution has to be the best for public interest, minimizing the impact on the state budget," he told journalists at an event on Friday, adding that total debt associated with the 9 motorways was €5.1 bln.

The government hoped to reach a solution soon, he said, and nothing was ruled out. The Public Works Ministry and the Treasury Ministry declined to comment.

Under Spanish legislation, drawn up over 40 years ago, when a private motorway goes bankrupt the state has to repay the owners for the cost of the land and the construction.

Traffic on the 9 toll roads, most of which connect Madrid to outlying towns, has plunged during a recession. Many have free national roads running alongside them meaning even fewer cash-strapped Spaniards are prepared to pay.

Previous plans had centered on the creation of a partly state-owned company to take on the debt as one long-term, low-interest loan, while builders took a hit estimated at €1.7 bln on their investments.

With 20%of the equity held by the builders and 80% held by the state, this structure could count as state aid though and be difficult to tally with European competition laws, said one source with knowledge of the matter.

One model being considered now is a 100% state-owned company that would assume the debt and add it to the national debt, already expected to hit a record high of around 100% of economic output this year.

Spain is desperate to keep its budget deficit, currently at around €65 bln, within strict Europe-imposed targets.

BOOM AND BUST

Nearly all of Spain's builders - Ferrovial, OHL, Abertis, FCC and ACS - created joint ventures during Spain's construction boom to win concessions from the government to build the highways which account for around 20% of Spain's toll road mileage.

The joint ventures borrowed money from banks like Santander, Caixabank and Bankia.

Builders have since written off most of the investment in the highways. When they created the ventures the builders paid out about €1.8 bln in capital in the motorway projects, Nunez said.

The concessionary companies have bank debt of around €3.6 bln linked to the motorways, Nunez said. Banks have declined to comment on the situation. Also in play is the compensation cost to landowners for the land the highways were built on, which is over €2 bln, he said.

If the government shirks from bailing out the motorways by taking on their debt, the construction companies will start legal proceedings against the state that could end up costing the same in terms of the effect on the deficit.

"I don't think the government will want this to go to the courts, as it won't benefit anyone," said Nunez of Seopan. "We have around a month, maybe a little more ... This cannot go further than June."

A government source said if the motorways went into liquidation it would hit the deficit by no more than €3 bln.

If the government and the construction firms fail to come up with a solution before the first of the nine companies start liquidation proceedings in about a month, it will complicate matters by triggering legal claims, lawyers and builders said.

Lawyers and investors said more doubt would also be thrown on the stability of Spain's legal and regulatory framework if the government did not honor the 42-year-old law.

"If the government starts to try to pull out of honoring the state guarantees, international investors may start to doubt state guarantees in deals across the board," said Santiago Hurtado, a lawyer at Deloitte Abogados in Madrid.

A generous system of subsidies for the renewables sector created by the previous government led to a boom in investment in solar and wind farms across the country. The government later rowed back on the state support, angering investors.

Further Reading :

* Spain asks banks to accept losses on highway loans

* Spain to rescue failing toll roads

* Madrid-Barajas Airport toll road files for bankruptcy