There is widespread speculation that Sacyr Vallehermoso will find itself ousted from the Ibex 35 in the third quarter index readjustment. The construction and infrastructure company is one of those basket case casualties of the Spanish building boom kept alive through the indulgence of the bankers. For investors looking for a play with some downside protection, a couple of details are worth noting...1). Sacyr, the infrastructure part, continues to be a major international player. They are one of the prime contractors on the expansion of the Panama Canal;
2). Their current market cap of 1.1 billion euros includes a 20 percent direct stake in Repsol-YPF whose market cap is 23 billion;
3). In normal times, companies involved in moribund industries, like real estate in Spain, and with debt-to-equity ratios of 300-plus are candidates for the bone yard. However, SYV does not ever go to zero;
4). Because their stake in REP is fruit of a covert appeal from the Spanish government for a white knight when the oil and gas company found itself in the sights of private equity.
Readers should do their own homework, but this is a good one to have disappear off the index radar.
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5 Comments:
Sorry to be so dumb, but how can they have a market cap of 1.1 billion if they have a 20% holding of Repsol, cap 23 billion?
Now what have I done wrong?
Umm.. the rest of the place is thought to be worth negative 3 bn.
Can they spin off that holding somehow? then shareholders would see their stake soar in value as the new company will be worth 4.6bn and the zombie parent will probably still worth a few cents for its (way out of the money) optionality.
That would be the lovely option - buy something that can't go broke for a few cents, and wait. Unfortunately, there's no real incentive to do it. The more likely outcome is that Repsol sells off its YPF part and distributes the money. At 8 or 9 bn, that's 2 for SYV to pay down debt. SYV ends up less negative and, if the price is right, REP doesn´t lose value.
I think.
Cheers
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