SWFs considering energy, health and banking investments

The global collapse in M&A activity may have seen sovereign wealth funds (SWFs) exercise caution with their business activities, but it does though seem that a number are again beginning to look at investment opportunities across Iberia.

The Abu Dhabi Investment Authority´s International Petroleum Investment Company (IPIC), which already held a 9.5% stake in Spain´s number two oil company Cepsa (as well as a 2% stake in Portugal´s electricity company EdP), has now agreed to buy the 31.5% stake held by Santander and the 5% held by Unión Fenosa for €3.3bn. Uría Menéndez advised Santander while Shearman & Sterling and Gómez-Acebo & Pombo are acting for IPIC.

Although the total stake bought took IPIC over Spain’s 30% corporate takeover threshold, it avoided having to make a full bid since French energy company Total already owns 1.8% more. However, Cepsa´s minority shareholders, through their association AEMEC, have asked the CNMV to consider whether IPIC and Total should now be forced to make a full bid for the company. Javier Cremades, President of AEMEC and managing partner of Madrid’s Cremades Calvo-Sotelo, has suggested that there could have been collusion between IPIC and Total to secure the deal.

SWFs, which have previously unsuccessfully negotiated to buy leading leisure group Parques Reunidos and real estate giants Colonial and Martinsa-Fadesa, are now however returning to Spain´s property sector. The State of Singapore´s investment fund GIC Real Estate, already a part owner of Barcelona´s five star Hotel Arts, paid €215m to acquire a 50% stake in two of Unibail- Rodamco´s most prestigious shopping centres located in Barcelona (La Maquinista) and Torrevieja (Habaneras). Clifford Chance advised Unibail- Rodamco while Uría Menéndez counselled GIC.

While SWF´s such as China´s Sinopec may have lost interest in Sacyr´s 20% stake in oil major Repsol, as they see the asking price as being too high, experts say that other groups are nonetheless evaluating Iberian solar energy and private hospital projects as well as opportunities in the banking sector.

But despite an upturn in interest, lawyers say that dealing with a SWF can be a complicated business. Take for instance the attempt by the brothers Jesus and Jaime Salazar, President and Vice-President of one of Spain´s leading food companies, SOS Cuétara, to strike a deal with an Arab SWF, said to be Libyan, to acquire a 28% stake in SOS.

The company, without board approval, loaned €212m to part-finance the initial acquisition of the stock by the Salazars, through an investment vehicle called Condor Plus. However SOS´s stock subsequently depreciated by 60% and the SWF walked away, leaving the Salazars exposed to a major personal loss. SOS´s banks, led by Caja Madrid, have since forced the brothers to resign from the company´s board and SOS now has to launch a €200m rights issue and to make a €190m provision to cover the hole in its accounts. SOS, which is to take civil and penal legal action against the Salazars, is regularly advised by Gómez-Acebo & Pombo.

In the opposite direction, Iberian companies are beginning to win some important contracts in the SWFs´ homelands, particularly in the Middle East. Barcelona’s Delta Capital Partners, for example, have had success in the telecoms sector. But with almost every international firm in Madrid also boasting an office in the Gulf, the prospects of an Iberian law firm opening there remain remote. Garrigues and Cuatrecasas, Gonçalves Pereira are thought to have considered the possibility but wish to see more Iberian companies winning business in the region before committing to further expansion.

Meanwhile, managing partners continue to pin their hopes on Gulf-based private equity houses and other buyers now being prepared to release hoarded capital to purchase undervalued assets, especially stakes in listed companies whose share price was decimated by market sentiment. The fear remains however that so long as sellers refuse to adjust their price expectations to market realities few deals will prosper.