Spanish Private Equity Eyes Distressed Property

MADRID (Reuters) – Private equity companies are waiting to pounce on assets put up for sale by distressed builders in Spain, with several deals nearing completion, the chairman of Spain’s Private Equity Association (ASCRI) said.

But investors need to tread carefully as the disparity in returns on such assets is likely to be huge, Jaime Hernandez Soto said in an interview with Reuters late on Monday.

In line with the drop across Europe as the global credit crisis squeezes private equity deals, ASCRI expects to close 2008 with total investment volumes of over 3 billion euros ($3.78 billion), compared with 4.2 billion a year earlier, Soto said.

“We won’t see growth yet in 2009, but volumes should stabilize. There will be a lot of investment opportunities arising from the financial crisis,” he said.

The year-end deal figure will include the sale announced on Monday of debt-laden builder Sacyr Vallehermoso (SVO.MC: Quote, Profile, Research, Stock Buzz)’s concessionary division Itinere (ITIE.MC: Quote, Profile, Research, Stock Buzz) to Citigroup Infrastructure Partners, Soto said.

Among other Spanish builders, Acciona (ANA.MC: Quote, Profile, Research, Stock Buzz) and ACS (ACS.MC: Quote, Profile, Research, Stock Buzz) are also in the process of selling non-core assets and private equity firms are eyeing these deals, some of which are quite advanced, Soto said.

Apart from the construction companies’ assets, there will be other interesting investment opportunities in other sectors in the coming months, but the crisis will mean that risk shadows opportunity, he said.

“I think we will see greater disparities in returns on investment …. In times of crisis, you can make a really good investment decision or make a big mistake,” Soto said.

Private equity firms are also likely to have to restructure the balance sheets of some of the companies in their portfolio, particularly those with high leverage, as a result of the crisis.

“But if the underlying assets of a company are good, then the private equity investor has to show support, either by tapping the markets for fresh cash or else allowing another investor to inject funds,” Soto said.

Acquisition opportunities for private equity in 2009 will be in midcap companies, Soto said, noting that “bigger deals require a much larger financial commitment from the (Spanish) banks and they are finding that difficult at the moment.”

Soto highlighted that 80 percent of the financing for major buyouts in Spain came from the leading German, French or British banks, many of which have been bailed out by their respective governments.

“Spanish banks were involved in these deals but they were never lead managers,” he said.

Soto said there is capital to invest at the moment, with private equity funds in Spain holding over 5 billion euros.

(Reporting by Judy MacInnes; editing by John Stonestreet)