Rajoy to Rescue Highway Billionaires Who Bet on Boom

Spanish taxpayers have bailed out banks and power companies. Next up are highway operators and their billionaire owners.

Prime Minister Mariano Rajoy’s government is considering a 5 billion-euro ($6.7 billion) plan to take over and guarantee the debt of about 364 miles (585 kilometers) of roads, according to two people familiar with the matter who declined to comment because no final decisions have been made.

“This is another repeat of ‘too big to fail’,” Jose Garcia Montalvo, an economics professor at Pompeu Fabra University in Barcelona, said in a telephone interview. “You don’t need to worry if something goes wrong, the government will come to the rescue.”

The roads are controlled by some of Spain’s biggest companies, including the Del Pino family’s Ferrovial SA, the Koplowitz family’s Fomento de Construcciones & Contratas SA, Sacyr SA and Actividades de Construccion y Servicios SA, run by Real Madrid Chairman Florentino Perez. They’re entitled to the rescue through a law passed under General Francisco Franco in 1972, which stipulates that when a private highway goes bust, the state has to repay its owners for the cost of the land and the construction.

A spokeswoman for the Public Works Ministry said the government is working on a solution that won’t affect the budget deficit and declined to give further details. Spokesmen for Ferrovial, FCC and ACS declined to comment on the plan. A spokesman for Sacyr declined to comment beyond saying it hasn’t received any compensation for its partnership with Ferrovial.

Government Guarantees

Under Rajoy’s plan to avoid paying compensation, the government will set up a company and give the lenders that financed the highways, including Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA, first claim on its revenue, the people said. In exchange, the banks would extend the maturity of the existing 3.75 billion euros of loans to 20 years on average, they said.

The government may provide a direct guarantee for about 1.25 billion euros of 30-year loans to cover expropriation payments to landowners that the builders never made and allow the highways’ current owners to retain 20 percent of the new company, according to the people.

A Santander spokeswoman and a BBVA spokesman declined to comment.

As Rajoy struggles to turn around the Spanish economy after two recessions that destroyed almost 4 million jobs, the Franco-era concession law is adding to a bailout bill for banks and the regions that already exceeds 140 billion euros. Spain’s sovereign debt totals about 775 billion euros, according to the Bank of Spain.


The amount of debt guaranteed by the government has increased 21-fold to 170 billion euros since the financial crisis began in 2008. That includes 23 billion euros of power industry debt the government securitized to reduce the leverage of utilities including Iberdrola SA and Endesa SA.

One of the biggest beneficiaries from the highway bailout would be Ferrovial’s Radial 4, which has been run by court-appointed administrators since October 2012, when the owners sought creditor protection after traffic volume fell to a record low.

The 60-mile R-4 stretches south from Madrid and is drawing just a fraction of the traffic forecast to justify its 2001 construction. Rajoy’s government may have to pay the concession 984 million euros, or 84 percent of total investment costs, should the government-led debt plan fail, a Feb. 4 court administration report shows.

Franco-Era Billionaires

Ferrovial was founded by Rafael del Pino y Moreno in 1952 to work on the country’s railways and in 1968 it won Spain’s first private highway concession, according to the company’s website. Its specialist highways unit, Cintra, now manages 26 highways in nine countries including a Toronto ring-road.

The Del Pino family is worth at least $5.7 billion, according to Bloomberg Billionaires Index. Their wealth has increased by about $1 billion this year as Ferrovial’s stock gained 22 percent; they’ve collected more than 580 million euros in dividends since Spain’s economic crisis started in 2008, Bloomberg Billionaires data show. Esther Koplowitz, who controls 54 percent of Barcelona-based FCC, is worth as least $1 billion, according to the ranking.

Tilting at Windmills

Ferrovial’s R-4 highway connects the Spanish capital with the region of La Mancha where Don Quijote, the deluded knight from Miguel de Cervantes’s 17th century novel, tilted at windmills believing they were giants. In 10 years of operation, traffic flows have reached less than half the volume that Ferrovial forecast in its bid.

The company missed its traffic estimates for the R-4 by an average of 50 percent between 2004 and 2007 as Spain’s economy grew at 3.6 percent pace at the peak of the boom, according to the court’s administrators report.

Traffic volumes tended to increase by about 1.5 percent for each percentage point of economic growth before the crisis, according to Anna Matas, a professor of transport economics at Barcelona’s Autonomous University. On that basis, to meet Ferrovial’s traffic forecast by 2007, the Spanish economy would have to have been 35 percent larger, outstripping even China’s expansion since the start of the concession.

Exaggerated Models

“Some of the models they used were completely exaggerated,” Matas said in a Nov. 28 telephone interview. “In the end, the feasibility studies were just another bureaucratic hoop.”

As well as missing their traffic forecasts, the cost of expropriating land for the highways set to be rescued may end up almost six times greater than their owners had projected as landowners challenged the prices they were offered through the courts. The total cost of land acquisitions for the projects is set to exceed 2.3 billion euros compared with about 400 million euros budgeted, the Public Works Ministry said.

In the 2010 budget, the government approved subordinated loans to help concessions offset the decline in traffic and increasing expropiation costs, the Public Works Ministry spokeswoman said. Budget restrictions meant that some of the cash was never actually paid to the companies, the court documents show.

Ferrovial’s R-4 faces 433.9 million euros of payments to the former landowners, the court documents show, compared with 72.8 million euros estimated by Ferrovial’s Cintra and its partners. The situation was already foreseen in October 2004, when the Ferrovial unit sold shares.

Spanish courts have adopted criteria that could increase the expropriation costs for the R-4 “in a very substantial way,” Cintra managers said in the deal’s prospectus.

Construction Payments

Even so, Ferrovial found other ways to benefit. Its Ferrovial Agroman SA unit was the main contractor on the 742 million-euro R-4 construction project and Cintra also has a services contract with highway, the court documents show. Cintra even billed the concession for handling its filing for creditor protection.

While Ferrovial’s services contract was cut by about 50 percent for this year by the court-appointed managers, Rajoy’s rescue plan will help Ferrovial Agroman SA construction unit collect the 93 million euros plus interest that the court documents show it is still owed from building the road.

“The government isn’t rescuing the thousands of small businesses that failed during the crisis,” Gonzalo Bernardos, a professor of economics at Barcelona University, said in a telephone interview.

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