Construction Company Martinsa biggest defaulter on debts in Spanish history

One of Spain’s largest construction companies is now unable to meet payments on its debt of 5,200 million euros which it owes to some of Spain’s largest banks – Caja Madrid, La Caixa and Banco Popular together with many other smaller financial entities.

The crisis in the Spanish property market began slowly but now it appears to have crashed with a heavy bump. Martinsa, now known as Martinsa-Fadesa, is the largest construction company in Spain with assets of 10,800 million euros, 28.7 million square metres and 173,000 properties in its portfolio. However, it is now unable to meet repayments on debts of 5,200 million euros.

Martinsa-Fadesa was once a symbol of prosperity in Spain but now it has become a symbol of the likely difficulties that the Spanish economy will face in the near future. A similar situation with the Spanish company Rumasa and bank Banesto signalled the start of a serious economic decline in the 80’s and 90’s respectively and it is feared that the problems that Martinsa-Fadesa is now facing will bring about a similar economic slump.

Following a meeting of the board of directors of Martinsa-Fadesa yesterday, which went on until 9pm last night, the company has requested that its creditors collaborate with the firm to help it out of its present crisis. It has announced that it intends to meet repayments as quickly as possible.

In order to be able to do this Martinsa-Fadesa is intending to sell shares. However, this comes at a time when share prices have plummeted and the housing market in Spain is practically paralysed. The president of Martinsa-Fadesa and the largest shareholder, Fernando Martín, will give up his role as chairman of G-14, a lobby group consisting of the largest construction companies in Spain, in order to try and find a way out of the crisis.

Just two months ago Martinsa-Fadesa managed to avoid the suspension of repayment of its debts. It renegotiated a debt of 400 million euros with 45 financial entities including Caja Madrid, which lent 800 millions euros to the company and La Caixa which lent it slightly less, followed by the Banco Popular which lent it around 400 million euros.

The renegotiated debt which was agreed in May this year included a number of requirements that Martinsa-Fadesa has been unable to meet. Martinsa-Fadesa had been hoping to borrow a further 150 million euros for investment in property development abroad. It had believed that the Instituto de Crédito Oficial (ICO) which is dependant on the Ministry for the Economy would lend it the money. However, this organization has refused to grant the loan given the state of the property market in Spain and the dire financial straits that Martinsa-Fadesa now finds itself in.

In fact the ICO has explained the refusal of a loan to Martinsa-Fadesa saying that it will not lend money destined to refinancing debt.

Martinsa-Fadesa received the final negative reply from the ICO on 7th July. It had also asked for the load of 150 million euros from a number of banks. It has received a negative reply from all of them and on Friday it sent out a communication asking for an extension to 7th August for it to achieve the 150 million euro loan it so desperately needs. So far the banks involved have not replied