Spanish Developer Habitat Enters Administration

Spanish property group Habitat filed for creditor protection owing €2.3bn ($2.9bn), amid signs that last-ditch efforts to rescue other developers were also in trouble.

The Barcelona-based group, created by a highly leveraged takeover two years ago, said it had taken the decision to "protect as best as possible the rights of creditors", which include the country's biggest banks.

It was forced to enter administration after failing to raise fresh funds in a cash call to shareholders a month ago. It was the country's second biggest corporate failure in the property sector this year, after market leader Martinsa-Fadesa entered voluntary administration in July with total debts of €5bn.

Yesterday's move by Habitat came as Colonial, once the country's largest developers by market value, warned in a regulatory filing that it risked default if it failed to find buyers for assets worth about €2bn.

A third company, Metro-vacesa, was locked in talks about the discounted sale of HSBC's London headquarters back to the UK bank.

It is also planning to swap debt for equity in separate negotiations with lenders in Spain.

All four developers are the result of complex, debt-financed takeovers and mergers agreed just before Spain's residential property market collapsed 18 months ago, leaving an estimated 1m new homes unsold.

House building permits for the first nine months of this year have dropped 60 per cent year on year, according to figures released this week.

The 18-month-old credit squeeze, and collapse in asset values, has further complicated refinancing efforts, while stock market turbulence has triggered margin calls in some cases.

Shares in Colonial, which two years ago peaked at €6, were yesterday trading at less then 20 cents.

Senior bankers and analysts have identified default by property companies and mortgage-holders as the biggest single threat to Spain's financial system.

From less than 1 per cent a year ago, the bad loan rate was 2.56 per cent at the end of September, according to the Bank of Spain.

Iberian Equities, a Madrid-based brokerage, yesterday estimated the non-performing loan (NPL) rate among property developers at 5.6 per cent, after accounting for Habitat and Tremón, a smaller real estate company that filed for creditor protection two weeks ago. This was set to soar, it said.

"We estimate a peak NPL ratio of 12 per cent for developers in our base case," it said in a note to clients, "leading to a system peak of 6.2 per cent".

Its worse case estimates suggest a 20 per cent default rate among property groups, and a system rate of 7.2 per cent.

Story from the Financial Times

Like this? Then share with your friends and colleagues!