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Troubled Spanish property developer agrees deal with banks to avoid crash

Troubled developer Metrovacesa has secured a debt for equity agreement which will see its creditor banks taking a 54.75% stake in the business to settle €2.1 billion of debt.

Each of the banks, Santander, BBVA, Caja Madrid, La Caixa, Banco Popular and Banco Popular Espanol will also buy 1.78% from other shareholders, to bring their total holdings to 65.4%.

The Sanahuja family became the major shareholders when assumed €4 billion in debt when it bought out other shareholders two years ago following a boardroom row that forced a split in Metrovacesa. With it came €4 billion of debt.

The Spanish banks have also agreed to buy an additional 10.7% stake in a side deal with mainly institutional investors, which the family has the option to buy back within four years.

Metrovacesa was once the largest developer in the eurozone and claims to have assets across Europe worth a total of €12 billion. But it is clearly in trouble in the current financial climate.

Last week it sold its largest single asset, the 45-story London Canary Wharf headquarters of HSBC, back to HSBC for £838 million pounds, some £250 million less than it was sold for.

'The banks had no choice but to become shareholders to prevent the biggest investor from seeking protection from creditors. That would have created major problems for Metrovacesa,' said Juan Jose Figares, chief analyst at Link Securities in Madrid.

Metrovacesa grew rapidly in the years preceding the onset of the credit crisis in 2007, using cheap debt to build up an impressive property portfolio which included buying the HSBC tower, which was the most expensive UK property deal ever.

However, the company has been badly affected by tightening credit conditions and the value of commercial property falling steeply across Europe.