Dec. 1 (Bloomberg) -- Sacyr Vallehermoso SA agreed to sell highway operator Itinere Infraestructuras SA to a Citigroup Inc. fund in a deal valued at 7.9 billion euros ($10 billion), cutting the Spanish construction company’s debt by almost one quarter.

The sale to Citi Infrastructure Partners, which may take months to complete, leaves Sacyr more indebted than its peers with borrowings of 12.5 billion euros and keeps up pressure on the company to sell further assets such as its 20 percent holding in oil company Repsol YPF SA.

Sacyr ended September with 16.5 billion euros of debt after increasing borrowings to expand in energy and counter a slump in domestic construction. The company spent 6.5 billion euros in 2006 to become Repsol’s biggest investor. Russia’s OAO Lukoil has expressed interest in buying a stake, which would include Sacyr’s holding.

“Although the disposal of Itinere is good news at any price, it does not dispel all the uncertainties on its gearing,” Emilio Rotondo, an analyst at Fortis Bank in Madrid, whose rating on Sacyr is under review, said in an e-mail. “We believe Sacyr will still be interested in selling its stake in Repsol.”

The Itinere sale will reduce Sacyr’s debt to more than five times the builder’s current market value from about seven times prior to the sale. That compares with about four times at rival Acciona SA, 2.8 times at Fomento de Construcciones y Contratas SA and 0.9 times at Actividades de Construccion y Servicios SA.

Abertis, Atlantia

The purchase is comprised of 2.87 billion euros in cash and 5 billion euros of assumed debt. Citi will offer to buy 100 percent of Itinere at 3.96 euros per share, Sacyr said. That’s 18 percent higher than the closing price on Nov. 28, the last trading day before the announcement. The Spanish builder will first sell a 42.8 percent stake to Citi and another 11.6 percent once the first transaction is complete, the builder said.

Abertis Infraestructuras SA, Spain’s biggest highway operator, and Atlantia SpA of Italy agreed to buy some of Itinere’s highway assets from Citi following the deal, Sacyr added. They include highways in Chile for Abertis and roads in Portugal and Brazil for Atlantia.

Abertis will pay 621 million euros for the highways, while the Italian company, the country’s largest toll-road operator, will pay 420 million euros, the pair said in separate statements.

Sacyr advanced as much as 9.7 percent in Madrid trading after a brief suspension following the announcement. The stock, which closed up 0.8 percent at 7.62 euros, has tumbled 69 percent this year, cutting its market value to 2.32 billion euros. Itinere gained 13 percent to 3.82 euros today, paring its decline to 46 percent this year. That gives the highway operator a value of 2.77 billion euros.

Hospitals, Transport

The transaction won’t include Itinere’s stakes in non- highway concessions such as hospitals or transport hubs and it also excludes stakes in eight highways including Madrid South and Madrid Levante, the filing said. Sacyr will acquire those investments for 478.3 million euros, the company said.

“It’s not a simple operation,” Ana de Pro, managing director for corporate development, told reporters in Madrid. “There’s still a lot of work to do.”

The executive declined to comment on Repsol, beyond last month’s regulatory filing when Sacyr said it had held talks with possible buyers. Further asset sales following the disposal of Itinere are possible “but it’s not a necessity,” she added.

Banks’ Stakes

Under the deal, which is dependent on regulatory approval, 8.34 percent of Itinere will be transferred to Bilbao Bizkaia Kutxa and Caja Vital, savings banks from Spain’s Basque region.

“It’s a very complex transaction and we’re not really crazy about it,” said Steven Fernandez, a Paris-based analyst at Exane BNP Paribas with an “underperform” rating on Sacyr. “We were hearing that Sacyr didn’t want to sell at this price; it sounds a bit desperate.”

Investment funds, construction companies, buyout firms and pension funds are competing for assets such as toll roads, airports and ports that offer a steady flow of earnings.

Infrastructure funds raised at least 20 billion pounds ($30 billion) over the past three years for acquisitions in the U.K. and Europe, a study by Deloitte Touche LLP in March showed. Goldman Sachs Group Inc., JPMorgan Chase & Co. and Citigroup are among banks that have raised such funds.

To contact the reporter on this story: Brian McGee in Madrid at bmcgee3@bloomberg.net

Last Updated: December 1, 2008 11:55 EST