Spain fears property meltdown as Colonial value plummets by 40%

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The Independent Online

Fears of a property meltdown in Spain were renewed yesterday after shares in the country's second-biggest real estate firm, Colonial, were suspended. The company had lost 40 per cent of its value in two days and more than half of its board members, including its billionaire chairman, were forced to resign.

Spain's market regulator, the CNMV, was demanding information from the company yesterday in an effort to understand what had caused the dramatic two-day share price drop last week that saw more than 1.5bn (1.1bn) of the company's market value obliterated. It also emerged that the company's second-biggest investor, a family owned firm whose board representatives were among those who stepped down, had begun selling down its stake in the stricken company. It was unclear how much it sold and whether the sales occurred before 27 and 28 December, when the company's shares went into freefall. The meltdown spurred fears that the slowdown in the Spanish property market, the driver of its economic boom over the last decade, would hasten. Last month G-14, the lobbying group recently established by the Spanish property companies, predicted further house price falls in 2008 and the elimination of up to 400,000 jobs over the next two years as construction of new homes slows.

Colonial sold 310m worth of assets yesterday, deals that it says were not emergency money-raising moves but simply part of the normal management of its portfolio. Yet an air of panic surrounded the company as the sales followed so closely on the resignations of former chairman Luis Portillo and nine other members of the 19-strong board last week. Speculation spread that Mr Portillo was also looking to sell his 41 per cent ownership stake in the company.

With its shares frozen yesterday, Colonial was worth 3bn, about one-third of the 8.9bn debt pile that Mr Portillo loaded on to the company in the last two years through a series of audacious deals to build the company into a giant with major shares of the office property markets in Barcelona, Madrid and Paris. The company has one of the highest debt ratios more than three-quarters of assets in the sector.

The CNMV requested yesterday that the company's top executives clarify whether any holdings they have in the company through complex derivative pos-itions could have led to the sell-off. In a letter to the regulator, Mr Portillo confirmed that he held various such interests and that due to the sudden price drop, unidentified financial entities had demanded payments of 42.4m as stipulated under the derivatives contracts. But he denied that the positions were the cause of the share price collapse.

A company controlled by the Nozaleda family, holder of 16 per cent of Colonial's shares, declared that it held more than 100 million shares 6 per cent of the company's stock through different derivatives contracts and that some of those had been sold, though it could provide no further details.

The turnaround in the fortunes of the company has been almost as dramatic as its rise. Mr Portillo, dubbed in one of many recent laudatory profiles as "The New King Midas" of Spain's once-hot property sector, transformed his relatively obscure company Inmocaral into the second-biggest in the country through a series of rapid-fire deals, none bigger than the purchase in 2006 of Colonial, a company that was three times its size. Colonial shares resume trading this morning.

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