July 15, 2008 12:15 pm

Martinsa Fadesa files for administration

One of Spain’s largest property companies on Tuesday filed for creditor protection owing €5bn, spurring a Madrid stock market sell-off and forcing banks to admit to an initial €550m in related bad loan provisions.

Martinsa-Fadesa said in a regulatory filing it had lodged a petition for court administration, marking the start of Spain’s largest bankruptcy process since the introduction of new rules in 2004.

It follows the rescue in March of Inmobiliaria Colonial by creditor banks, which swapped debt for equity held by the controlling shareholders in Spain’s second-largest real estate company.

After about a decade of booming activity, Spain’s residential housing market collapsed last year amid rising interest rates, oversupply and tougher lending conditions. Many small construction companies and property developers have either filed for protection or been absorbed by larger groups. The number of companies entering administration this year has more than doubled compared with 2007, according to lawyers.

Suppliers, meanwhile, have been downsizing. Roca, which makes bathroom equipment, announced this week it was laying off 400 workers. The downturn is also pushing up non-performing loan quotients at Spanish banks, forcing them to step up provisions.

Banco Popular, Spain’s third-largest listed bank, said on Tuesday it had already set aside €100m against its exposure to Martinsa, which it would not quantify. Shares in the bank closed down 9 per cent. Caja Madrid, the country’s second-largest savings bank, is understood to have made provisions of €250m, while La Caixa, the largest, said it had set aside €192m to cover its €700m exposure to Martinsa.

The distressed property company, created through Martinsa’s debt-financed €3.5bn takeover of Fadesa last year, said on Tuesday its board had decided late on Monday to file for administration after failing to raise the €150m of fresh equity needed to complete a €4bn debt refinancing with banks.

Its search for the funds included a petition to a government credit agency that helps small, innovative businesses and artistic ventures such as film production.

Martinsa told regulators it had insufficient cashflow to meet interest payments and pay suppliers. It blamed the “clear recession that the Spanish economy is suffering at the moment”. However, it said it remained “viable”, with assets valued at €10.8bn at the end of last year. Analysts, however, said a land bank valued at €6.6bn by independent consultants, was worth a fraction of that in the current market.

Martinsa’s filing added fuel to a heavy sell-off on the Madrid stock exchange, with Spain’s highly-leveraged construction, infrastructure and property groups suffering the most.

Ferrovial closed down 7.4 per cent, while Sacyr Vallehermoso lost 8.4 per cent. Inmobiliaria Colonial dropped 11.6 per cent.

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