Spain Wins Back Share of Europe’s IPO Market on Recovery

Initial public offerings by Spanish companies account for about 8 percent of the $42 billion in cash raised in European stock-market listings this year, rebounding from zero in 2012 and 2013 as a recovery in the country’s economy attracts investors.

Merlin Properties SA, a Spanish real estate investment trust, aims to raise about 1.5 billion euros ($2 billion) next week in the largest IPO by a European REIT since 1998. It follows Lar Espana Real Estate Socimi SA and Hispania Activos Inmobiliarios, which raised a total of 900 million euros in March and will add to the $3.4 billion raised in Spanish IPOs this year, the most since 2011, according to data compiled by Bloomberg.

“A year ago, no one wanted to invest in Spain but now, as the economy rebounds, investors are returning,” said Luis Benguerel, a trader at Interbrokers Espanola de Valores in Barcelona. “It’s logical that investors target real estate as it was the worst-performing sector during the crisis and offers most upside.”

After the collapse of Spain’s real estate market in 2007, which triggered the most severe recession in five decades and forced Spain to request a bailout for its banking industry, signs of a recovery are starting to appear. The economy is growing again, the yield on the 10-year bond is close to a record low and the country’s IBEX 35 stock market index has risen 47 percent in the past year.

Underperforming Stocks

Still, not all potential sellers may find investor appetite as some companies struggle to perform. Online travel business eDreams ODIGEO SL has lost 37 percent since listing. Spanish IPOs on average fell 1.4 percent this year, compared with a 0.1 percent drop in the Bloomberg European IPO Index over the same period, data compiled by Bloomberg show.

In 2013, Spain reduced the tax burden for REIT investors in an attempt to boost investment after home prices and commercial real estate prices fell more than 40 percent from their 2007 peaks. Pacific Investment Management Co.’s Bill Gross, Quantum’s George Soros and billionaire John Paulson have all since taken stakes in Spanish REITs that have staged IPOs in recent months.

Investment in Spain by funds, private-equity firms and other financial-services companies totaled 13.9 billion euros in 2013, according to Irea, a Madrid-based debt-restructuring firm. That was more than double the amount invested in 2012.

‘Distinct Strategies’

About 37 percent was spent on real estate and the proportion to be invested in property assets is expected to increase by 20 percent this year, according to Irea Chief Executive Officer Mikel Echavarren.

Investment in commercial real estate amounted to 988 million euros in the first quarter, according to data compiled by CBRE Group Inc. That’s more than double the 424 million euros a year earlier.

“These IPOs have clear, distinct strategies with Lar and Hispania intending to invest over two years and divest over five,” Irea’s Echavarren said by phone. “And then you have Merlin, which has the longer term goal of becoming Spain’s largest real estate company.”

Merlin plans to sell as many as 150 million shares at 10 euros each and has received 600 million euros of commitments -- equivalent to 40 percent of the share capital -- from investors including Moore Capital Management LLC, according to a prospectus published by the stock-market regulator on June 13. Shares are due to begin trading in Madrid on June 30.

Experienced Management

“Merlin’s management team has an immense amount of experience between them,” Echavarren said. “It looks like they will raise a lot of money.”

Ismael Clemente will serve as Merlin’s chairman and chief executive officer and Miguel Ollero will be chief financial officer and chief operating officer. Both were directors of RREEF Spain and founded Magic Real Estate, which has 2.8 billion euros of assets under management. David Brush, former head of Europe for Brookfield Property Group, will be Merlin’s chief investment officer.

If successful, Merlin’s IPO is expected to be the largest by a Spanish company since April 2011. The largest initial share sale by a European REIT was made by Retail Estates NV in 1998, according to data compiled by Bloomberg.

Credit Suisse Group AG, Deutsche Bank AG and UBS AG are among the banks that are managing Merlin’s IPO, according to the prospectus.

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