Bloomberg News

Loan Snarl Punishes Spain Builder Backed by Soros, Gates

July 30, 2014

Esther Koplowitz

Esther Koplowitz attends Financial Annual Convention of the Association of Financial Spanish Markets at Madrid Casino in Madrid, in November last year. Photographer: Eduardo Parra/Getty Images

Pressure is mounting on Esther Koplowitz to refinance personal loans before a deadline tomorrow and allow a Spanish builder that counts Bill Gates and George Soros among investors to resolve its own debt tangle.

Koplowitz is renegotiating about 1 billion euros ($1.3 billion) of debt tied to her controlling stake in Fomento de Construcciones & Contratas SA, according to two people familiar with the matter, who asked not to be identified because it’s private. Her determination to retain control means that she is unlikely to approve any plan by FCC to raise equity until she refinances her own debt, the people said.

The builder, which is selling assets and cutting jobs to counter two years of losses, needs new funds to cancel punitive debt where the principal increases by at least 150 million euros a year. The 1.35 billion euros of loans were a stop-gap measure put in place last month as part of an almost 5 billion-euro restructuring of the Barcelona-based company, which has been in Koplowitz’s family for more than half a century.

“Koplowitz’s difficulties with her own debt have an impact on FCC,” said Nuria Alvarez, an equity analyst at Renta 4 Banco SA, a Madrid-based financial services and brokerage firm. “First Koplowitz must resolve her own financial situation, before FCC repays its loans. FCC’s situation is delicate.”

Dividends Halted

FCC loaded up on debt from 2005 to expand, with net borrowing swelling to as much as 7 billion euros in 2012. The company has reported losses since 2012 as Spain’s economic woes deepened. Koplowitz’s own fortunes declined with FCC’s and she began facing difficulty servicing her debt when the builder’s earnings turned into losses and the company stopped paying dividends.

The company, which has diversified into water and waste management and has contracts to manage Abu Dhabi’s sewage system in the United Arab Emirates, has dropped 4.5 percent this month to 16.3 euros a share, down from a peak of 83.9 euros in 2007, Bloomberg data show. Its 450 million euros of convertible bonds are quoted at 99.3 cents on the euro, down from 102 cents last month, according to data compiled by Bloomberg.

FCC’s payment-in-kind loan pays interest of 11 percent more than the euro interbank offered rate in the first year, increasing to 16 percent in the fourth year. The PIK loan allows the borrower to pay interest with additional debt. The creditors hold warrants that allow them to be repaid in shares if the debt is outstanding at maturity in 2018.

Stake Dilution

FCC will propose canceling the debt by raising equity when the time is right, Chief Financial Officer Victor Pastor said on a call with analysts April 28. Koplowitz risks losing control of her family company if she doesn’t participate in that increase and also faces dilution in 2018 if the PIK converts to equity.

Koplowitz holds her controlling FCC stake through her investment vehicle B-1998 SL and hired Messier Maris & Associes in November to advise her on reorganizing the debt. She owes 60 percent to Banco Bilbao Vizcaya Argentaria SA and 40 percent to Bankia SA, according to people with knowledge of the matter at the time.

She is in talks with investors including George Soros to help her refinance the loan to meet the July 31 debt payment, according to two other people familiar with the matter. Guggenheim Partners LLC, the New York and Chicago-based financial services firm, is also considering helping her refinance, Spanish newspaper Expansion reported July 21.

Company Inheritance

A spokesman for FCC and Koplowitz declined to comment on the PIK debt and refinancing negotiations. Michael Vachon, a New York-based spokesman for Soros, and Tom Mulligan, a spokesman for Guggenheim, declined to comment on the refinancing talks. No-one was immediately available at Messier to comment on the negotiations.

Koplowitz and her younger sister Alicia inherited Construcciones & Contratas SA from their father Ernesto Koplowitz, an eastern European Jew who settled in Spain during the Second World War. Ernesto died in a riding accident when Esther was about 10 years old.

In 1992 the sisters merged their father’s company with Fomento de Obras & Construcciones SA creating FCC. The partnership lasted until 1998 when Koplowitz took out a 137 billion-peseta ($894 million) loan to buy Alicia’s 28.2 percent of FCC. The loan was the biggest ever made to an individual in Spain, Argentaria SA, now part of BBVA, said in a June 1998 statement.

Stake Increase

Koplowitz raised her stake in FCC in 2004 and increased her majority holding in B-1998 in 2008 and 2010. Koplowitz’ daughters Esther Alcocer Koplowitz, Alicia Alcocer Koplowitz and Carmen Alcocer Koplowitz sit on FCC’s board of directors, with Esther Alcocer as chairwoman.

My mother “is one of the most involved people in the company and for that reason FCC works,” Esther Alcocer Koplowitz told shareholders at the company meeting in Barcelona on June 23. “It is part of her soul.”

The chairwoman repeatedly reminded shareholders that last year was “hard” for FCC. The company’s Austrian unit, Alpine Holding GmbH, filed for a 2.56 billion-euro insolvency, the biggest in the nation’s postwar history. Its Pamplona-based Cementos Portland Valderrivas SA unit is currently negotiating a restructuring of about 1 billion euros of debt.

The company reported a net loss of 31 million euros in the first quarter, compared with analysts’ estimate of a 25.2 million-euro loss. The builder, which reported 1.51 billion euros of losses in 2013, has completed about 80 percent of its divestment plan, Chief Executive Officer Juan Bejar said last month.

“FCC is facing a race against time,” said Francisco Salvador, a strategist at FGA/MG Valores in Spain. “Will the company’s results improve fast enough to service the PIK debt? There’s a lot of uncertainty for FCC at the moment.”

(An earlier version of this story corrected the currency conversion in the second paragraph.)

To contact the reporters on this story: Katie Linsell in Madrid at klinsell@bloomberg.net; Manuel Baigorri in London at mbaigorri@bloomberg.net; Ruth David in London at rdavid9@bloomberg.net

To contact the editors responsible for this story: Shelley Smith at ssmith118@bloomberg.net Michael Shanahan


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