The acquisition created the world’s biggest toll-road operator. But it was costly. One of the acquiring companies is now in trouble because its bridge collapsed, killing 43 people.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Recently acquired Spanish toll-road group Abertis has announced one of the biggest special dividends in Spanish history, worth almost €10 billion. That’s roughly the equivalent of half the amount dished out in dividends by all Spanish listed companies last year. And all of it will be transferred to the three rival companies that bought Abertis in a €16.5 billion joint takeover last October:
- Italy’s infrastructure giant, Atlantia, majority owned by the Benetton family
- Spanish construction behemoth, ACS, headed by Real Madrid president Florentino Perez
- ACS’s German subsidiary, Hochtief.
To complete the acquisition, which created the world’s biggest toll-road operator with some 14,000 kilometers of highways under management, the three companies raised €10 billion of fresh debt and €7 billion of equity. By combining their bids, Atlantia and ACS averted a costly bidding war while also assuaging Spanish government fears that all of Abertis’ strategic assets would fall into Italian hands.
Now, the only major loose thread left hanging is what to do with all the debt they took on to buy Abertis. That’s where this new financial operation comes in.
Instead of making the dividend payment in cash, Abertis will assume the entire debt obligations of Abertis Holdco, the holding company Atlantia, ACS and Hochtief set up to execute the takeover — all €9.975 billion of it! In other words, as the Spanish financial daily Expansión points out, Albertis effectively gets to refinance all the debt ACS, Atlantia and Hochtief borrowed last year to purchase it, almost doubling its debt load from €12.5 billion to €22.5 billion.
Last week Abertis announced plans to issue its biggest ever bond, worth at least €3 billion. According to Expansion, Abertis will have to refinance €5.7 billion of maturing debt between this year and the next, and a staggering €15.8 billion over the next five years. But how will it service all this newfound debt?
- The company says that €2.2 billion is already covered by the proceeds from its sale last year of two subsidiaries, Cellnex and Hispasat.
- As for the remaining €7.7 billion, one possible option would be to gradually pay down the principal by significantly expanding its revenues. After all, one of the main goals of last year’s merger was to create a global infrastructure powerhouse capable of competing for a project portfolio worth some $200 billion in strategic markets such as the U.S., Australia and Europe.
- Failing that, Abertis could slash its capital expenditure (capex), meaning less money spent on upgrading and maintaining its road network, which spans Spain, France, Chile and Brazil.
The third option could be hugely controversial given that Abertis’ new Italian part-owner, Atlantia, is currently facing a criminal inquiry for potential negligence in the collapse last year of the Morandi Bridge in Genoa, resulting in the deaths of 43 people and leaving 600 people homeless.
The Morandi Bridge is operated by Autostrade per l’Italia (ASPI), a wholly owned subsidiary of Atlantia, which also happens to own the inspection company responsible for safety checks on the bridge. And those checks, it seems, were not very thorough.
Around 60 suspects are currently under investigation over the bridge collapse, including Atlantia subsidiaries Autostrade and Spea Engineering, Atlantia CEO Giovanni Castellucci, Chairman Fabio Cerchiai and another 19 officials at both the infrastructure group and the transport ministry. If found guilty of negligence, Atlantia could face massive fines as well as regulatory action. The company already booked provisions for the disaster in its 2018 accounts, with a negative impact on its EBITDA of €513 million.
But the fallout could grow much bigger. A ruling against Atlantia could prompt the Italian government to revoke Atlantia’s contract to operate around 3,000 km of Italian toll roads. However, this would mean the government would have to take on many of Altantia’s liabilities, potentially swelling Italy’s already bloated public debt (last count: 131% of GDP) by a further €9.4 billion. And that is unlikely to go down well in Brussels.
It would also have significant ramifications for Atlantia’s credit profile, warns Moody’s, which currently rates the firm’s debt Baa3, just one notch above junk:
…[a]ny formal notification of non-compliance with its concession obligations and the commencement of a termination procedure would be a significant credit negative for ASPI and, in turn, Atlantia, given ASPI’s significance in the context of the wider group’s credit profile and the linkages between the two entities. Such a scenario would further increase uncertainties and expose the group to the risk of lengthy litigation procedures and sizeable fines.
In the face of such a risk, Moody’s recently downgraded Atlantia’s outlook to negative from stable. One of the few factors Moody’s cites in Atlantia’s favor is its recent acquisition of Abertis, which helped to reduce the Italian conglomerate’s dependence on its concessions business in Italy. Before the acquisition, Atlantia’s Italian toll road operations accounted for two thirds of its EBITDA; today, it accounts for just one-third.
There’s only one problem: many of the most profitable Spanish toll roads in Abertis’ portfolio are scheduled to return to public hands over the next couple of years, their initial construction costs having been paid off years ago. That includes the AP7, which stretches the entire length of Spain’s Mediterranean coast and serves as the main artery into France and Northern Europe. If Abertis loses the AP7, it will be deprived of one of its most lucrative sources of income. Without it, the company could struggle to service its now much larger debt pile.
As El País recently reported, it’s still far from clear what will happen when the road toll contracts begin to expire at the end of this year. But if anyone can convince the government to roll over the contracts for another few years, or decades, it’s Florentino Perez, the president of ACS and Real Madrid, whose ties with Spain’s central government are so intimate that just about every time one of his domestic businesses runs into trouble, it gets bailed out to the tune of billions by Spanish taxpayers. By Don Quijones.
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