Spanish govt mulls bailout of private toll roads

Link to article here.

Is this what Spanish toll road operator in Texas, Cintra, expects will ultimately happen when its SH 130 and other overpriced toll roads go belly-up? Not as long as Texans draw breath...

Spain to rescue empty toll roads in deal avoiding deficit hit
By Sonya Dowsett and Jose Elías Rodríguez
November 28, 2013

MADRID (Reuters) - The Spanish government is nearing a deal with the country's main builders and banks to rescue up to nine bankrupt toll roads and take over debt worth up to 4 billion euros ($5.4 billion), four sources with knowledge of the talks said.

Motorists have preferred to use Spain's free national highways during the recession so traffic on the toll roads has fallen nearly 40 percent in the 5-year economic slump.

The government is seeking to create a state company to take on the debt as one long-term, low-interest loan, the sources said. The builders will get 20 percent of the equity of the new company, taking a hit estimated at 1.7 billion euros on their investments.

Builders, including Ferrovial <FER.MC>, Abertis <ABE.MC>, OHL <OHL.MC>, ACS <ACS.MC>, FCC <FCC.MC> and Acciona <ANA.MC>, created joint ventures to win concessions from the government to build the toll roads during Spain's boom years.

They borrowed money from banks such as Santander <SAN.MC>, Caixabank <CABK.MC> <CABK.MC>, Bankia <BKIA.MC>, Popular <POP.MC> and BBVA <BBVA.MC> to do so.
The arrangement avoids debt linked to the troubled toll roads counting towards Spain's deficit as the country fights to reduce its budget gap to hit Europe-agreed targets.

"All the parties are trying to reach a solution," said one source close to the negotiations.
"The alternative would be the toll roads going bankrupt and the government having to suddenly deal with an extra 4 billion euros booked to its budget deficit."

However, the loans will swell the country's public debt, already tipped to rise to nearly 100 percent of economic output next year, its highest level in more than a century and up from 40 percent at the start of Spain's severe economic downturn five years ago.

"The three parties are going to lose out and the question is who loses the most. I think the three will opt for keeping losses to a minimum and parking the problem for the long-term on the shoulders of the Spanish taxpayers," said Mikel Echavarren, head of Madrid-based real estate consultant Irea.

It is not the first time that the government has had to step in to mop up the excesses of Spain's housing and construction boom which ended abruptly five years ago.

Spain set up a so-called 'bad bank' last year, under the terms of a European bail-out of its lenders, pushing up its so-called contingent liabilities - debt that has been issued by semi-public entities backed by the Treasury - to 181 billion euros, equivalent to around a fifth of economic output.

Under European law, if at least half the income of this state-owned company covers maintenance and debt servicing costs, it does not count towards deficit.

The government has said repeatedly any solution to rescue the roads would not hurt the country's deficit.

The plan will need the blessing of the EU competition authorities as the transfer of private debt into the public domain could be deemed a state aid for the companies operating the roads.

Spain's Treasury Ministry and the office of Europe competition chief Joaquin Almunia declined to comment. The Public Works Ministry did not respond to requests for comment.

Builders Ferrovial, Abertis, OHL, ACS, FCC and Acciona as well as domestic banks Santander, Caixabank, Bankia and Popular declined to comment.

Spain's second-biggest bank BBVA declined to comment, except for saying that it had already taken into account any possible changes on the current terms of financing for the highways.

In addition to the debt it will swallow, the state will take out at least a further 1.2 billion euros at an interest rate of around 6 percent which it will use to cover the pending compensation payments to people who gave up land for the roads, one source with knowledge of the talks said.

The negotiations center on at least seven bankrupt toll roads, including the four so-called 'radial' roads of Madrid, which radiate out from the capital; the toll road that runs out to Madrid's Barajas airport and the toll road that runs from Madrid to the east coast of Spain.

Builders, including Ferrovial, Abertis, OHL, ACS, FCC and Acciona, created joint ventures to win concessions from the government to build the toll roads during Spain's boom years and borrowed money from banks to do so.

They will now have to take a hit on the equity invested in the roads, estimated at around 1.8 billion euros by one senior sector source, receiving just a 20 percent stake in the new company, whose equity will be valued at 600 million euros.

Most of the companies have already written down a big chunk of the losses, meaning the impact on their earnings should be limited.

Domestic banks have also likely already written off their investments in the troubled toll roads, one source close to the negotiations said.

The state and the banks are looking at a new 30-year loan to the state-owned holding company with a low interest rate of 2.6 percent, one source close to the process said.

"What the banks are doing is refinancing the debt at a much lower interest rate over a long period of time," said one source. "The state will pay back the loan at much more favorable maturities and at much lower interest rates."

Link to article here.

By Mark Nolan
January 23, 2014
The Leader

Traffic using Spain´s toll motorway network has dropped by 33.6% in the last seven years, after a record of 23,909 average daily vehicles used the network in 2006.

In 2013, the average number of vehicles using the toll roads amounted to just 15,864 per day, a drop of 4.89% compared to 2012, a figure similar to that of 1996, according to the Ministry of Development. However, that decline has decreased over the year previous, as in 2012 the drop was 10.1% over that of 2011.

A bleaker picture could be calculated when considering the length of the network, as the significance is greater when the distance available is included, as in 2006 there were just 1,733 kilometres of payable roads, compared to the 2,568 kilometres today.

One interesting fact, albeit daunting for those involved, is the fact that the largest drop in traffic and revenue has occurred on the roads which are operated by companies which are either bankrupt or facing bankruptcy.

The R-2 Madrid-Guadalajara ring road suffered the most significant drop, losing 22.5% of traffic, with an average daily use of just 4,588 vehicles. The R-3 Madrid-Arganda ring road also saw a 9.3% drop to 9,346 users, the R-5 Madrid-Navalcarnero lost 12.5%, seeing 7,034 vehicles, and R-4 Madrid-Ocaña dropped 15.3% to 4,652 movements.

As for the regional routes, the Ocaña-La Roda route fell by 9.8% to 2,802 cars a day, the Cartagena-Vera road lost 3& to reach 2,737 daily users, whereas the route through the Alicante area saw a drop of 733%, to 5,293 movements.

The road linking Madrid to Barajas airport lost 2.5% of users last year, but remains the busiest of the entire payable network, with almost 17,834 vehicles per day. As for the quietest, that honour goes to the Madrid-Toledo route with just 1,215 movements per day.

In order to try to alleviate the burden of the toll network operators, the Spanish government is working on a development plan that would see them bailing them out in exchange for 80% ownership of the companies. The remaining 20% allocated to concessionaires currently operating the routes, mostly affiliated with or fully owned by major construction companies.

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