Dec. 1 (Bloomberg) -- Spanish builder Sacyr Vallehermoso SA agreed to sell highway operator Itinere Infraestructuras SA to a Citigroup Inc. fund in a transaction valued at 7.9 billion euros ($10 billion) to cut debt.

The sale to Citi Infrastructure Partners will trim Sacyr’s debt to 12.5 billion euros, the company said in a filing to regulators today. The purchase is comprised of 2.87 billion euros in cash and 5 billion euros of assumed debt.

Sacyr, Spain’s fifth-largest construction company, ended September with 16.5 billion euros of debt, about seven times its market value, after the company increased borrowings to expand in energy and counter a slump in domestic construction. In 2006 it spent 6.5 billion euros to buy a 20 percent holding in oil company Repsol YPF SA. 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-mailed note. “We believe Sacyr will still be interested in selling its stake in Repsol.”

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, Atlantia

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 traded up 2.8 percent at 7.77 euros as of 11:48 a.m., has tumbled 68 percent this year, cutting its market value to 2.39 billion euros. Itinere has fallen 46 percent, valuing the highway operator at 2.75 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.

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 ($30.1 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 reporters on this story: Brian McGee in Madrid at bmcgee3@bloomberg.net; Charles Penty in Madrid at cpenty@bloomberg.net

Last Updated: December 1, 2008 06:39 EST