Ambrose Evans-Pritchard: Bill Gates' move boost for Spain

Opinion

American billionaire Bill Gates has bought a 6 per cent stake in the Spanish infrastructure group FCC, a powerful vote of confidence in Spain's battered economy.

News that Microsoft's founder and the world's richest man was dipping his toe into Spanish waters was greeted with euphoria on the Madrid stockmarket, though the rally later sputtered on fresh banking woes. FCC's share price surged 8 per cent, lifting the construction sector.

Juan Bejar, FCC's chief executive, said the 113 million ($184 million) share purchase was a "referendum on economic recovery, both at national level and for the company itself. I think he chose FCC as an entry point because he sees Spain as attractive. It is a long-term investment because his funds don't take opportunistic bets for short-term gain".

Santander chief Emilio Botin said last week there had been a "drastic change" in perceptions about Spain. "Money is pouring in from all sides. Everybody wants to invest in Spain," he said.

Spanish heiress and philanthropist Esther Koplowitz, the 7th Marchioness of Casa Penalver, remains FCC's biggest shareholder with 53 per cent, while her daughter chairs the 80,000-strong company. The group was coy about the details of the deal, saying only that buyers were entities "related" to Gates. The share deal entails dilution.

A builder of motorways and airports, FCC is best known for the Gate of Europe leaning towers in Madrid and the white shark-teeth design of Valencia's Arts and Sciences City. It has just won a joint contract to build the Mersey Gateway Bridge in Liverpool.

Much of its daily business is sewage, waste management and recycling. It owns FCC Environment in Northampton, with 2400 workers.

The group's share price has jumped 130 per cent this year, despite an asphyxiating debt of 5 billion and a string of troubles at its Austrian subsidiary, a venture that was supposed to shield it from losses at home. Bejar aims to slash 2.2 billion of debt through asset sales and stretch out the rest, a task that should now be much easier with Gates standing behind him.

The company won a Saudi contract this year to build the Riyadh Metro, spearheading its overseas expansion. More than 56 per cent of turnover now comes from abroad. Its cement business in Spain has been devastated by the property crash, forcing the company to carry out waves of lay-offs. House prices have fallen 37 per cent so far, with a backlog of 1 million unsold homes.

House building has collapsed from 800,000 at the peak of the boom to 220,000 this year. A string of developers has gone bankrupt, but this has now flushed out the weakest.

Gonzalo Lardies, from brokers BPA, said Gates was buying a "distressed company" at a bargain price from a sector that "stinks like sardines", and may be venturing out of his depth.

"It looks as if he wants to get into Spain but doesn't know how, and the only way he can think of is through companies that did well in the last cycle. FCC may be solvent but it remains to be seen whether it is really profitable," he told El Confidencial.

Whether Gates is right in betting that Spain's economy has touched bottom after a five-year slump remains to be seen.

Bad loans in the banking system reached a record 12.1 per cent in August. The International Monetary Fund expects the economy to contract 1.4 per cent this year, before eking out growth of just 0.5 per cent in 2014, and warns the country is highly vulnerable if the European Union authorities fail to deliver on their pledge for a genuine banking union.

Corporate debt is 172 per cent of GDP, one of the world's highest, and Spain's international investment position is still -92 per cent of GDP.