For Spanish companies deleverage is the word

A couple of weeks ago, two Spanish companies–Telefónica and NH–closed each one a big asset sale abroad: the first sold its subsidiary O2 Ireland to Hutchison Whampoa for 850 million euros and the second sold Grand Hotel Krasnapolsky in Amsterdam to an international consortium of investors by 157 million.

After years of heavy investment (in 2007 it reached 112 bn euros), Spanish companies abroad are reducing their debt. Telefónica’s is of less than 47 billion euros in 2013. NH, given the refusal of the banks to restructure its debt, is trying to alleviate its problem of 996 million with the sale of the hotel, which generates 42 million of capital gains. In 2012 negative net results were unprecedented, only comparable in gross terms to those recorded at the end of the 1990s, while in net values there hasn’t been anything similar in 20 years.

Gross investment in the period decreased almost 60% over the previous year. In addition to that, there has been a dramatic exit of non-productive investments in companies holding of foreign securities (ETVE, in Spanish), first reason of the negative figure of -13.765 million euro of net investment.

The Spanish economy is highly indebted and thanks to their leverage the main companies have acquired a relevant position in different regions of the world, mainly in Latin America and in very diverse sectors, to the extent that from the Ibex 35 total sales, 70%, come from outside of Spain.

Their debt levels are forcing companies to sell assets abroad, although on many occasions they are managing to carry the operations out without losing control of their foreign affiliates, putting them in their markets of origin, as Telefonica Germany, Santander Brazil or OHL Mexico have done.

The Spanish business landscape is full of deleverage processes. For example, Santander bank has sold 32.5% of petrol company Cepsa, the Bank of Venezuela, 5% of France Telecom Spain, its assets in Colombia, its stake in the Bank of Brazil, and part of its insurance business, among others. As a “reward”, Fitch or Standard & Poor’s kept their ratings (S&P gave it a AA).

Another remarkable case is energy company Iberdrola, which sold 850 million euros in assets last year, as part of its biannual plan of deleverage. Between 2012 and 2014 the firm plans to sell 32 wind installations in France, all its onshore assets in Germany, part of its assets in the US, its 20% of Medgaz, and 13.25 % of Gas Natural México.

The list would be endless and, indeed, it is difficult to find a company in the Ibex 35 that is not dealing with debt via deleverage, not been seen in sales of shares on the Ibex 35, taking into account that in the current international context, markets do not accept any company that has packages of debts above twice, or 2.5 times higher than its Ebitda (earnings before tax and financial expenses).

About the Author

Carlos Díaz Guell
Editor at and, Carlos began his career in financial journalism as founding member of El País. He's been communications director of Bank of Spain, member of the ECC at the European Central Bank, Institutional Relations director at Iberia and editor at La Economía 16 magazine.

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