Why did Acciona, a Spanish construction firm, buy Endesa SA ?

Spanish builders reinvent themselves

MADRID: Spanish construction companies may escape the worst housing crunch in 15 years after turning themselves into low-cost energy stocks.

Sacyr Vallehermoso and competitors together spent about $16 billion, almost a third of their annual revenue, in the second half of 2006 to buy stakes in Spain's biggest oil and natural gas producers.

Some, like Sacyr, doubled the assets on their balance sheet. As much as half of the Spanish building industry's profit now comes from dividends, company filings show. As oil and gas prices rise, those gains are only going to get bigger, said Francisco Salvador, a director of Venture Finanzas in Madrid.

"People are now starting to realize that there is a certain hidden value in these builders," Salvador said. "Their results are just going to keep on growing now that they've minimized their exposure to the real estate business."

According to the average of eight analyst forecasts in a Bloomberg survey, Sacyr will rise an additional 25 percent and Actividades de Construcción y Servicios, known as ACS and the largest builder in Spain, will extend gains by 24 percent.

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The purchases came about because builders had ready access to bank loans and cash from the housing boom, allowing them to make acquisitions at a time when power and oil companies were looking for takeovers.

"The stakes they've bought have some great momentum," said Gonzalo Lardiés, a fund manager in Madrid at LCF Rothschild Group, which oversees $145 billion worldwide. He bought ACS in September. "These companies are no longer just builders."

No other construction companies in Europe have spent as much money changing the makeup of their business. Spanish companies account for seven of the building industry's 10 largest European acquisitions in the past 12 months.

ACS spent $2.7 billion in 2006 to raise its stake in Iberdrola, the Spanish utility to 7.2 percent. It also owns 40 percent of the natural gas company Unión Fenosa.

Sacyr spent $8.6 billion buying 20 percent of Repsol YPF, Spain's largest oil refiner.

At the same time, Acciona and the Italian utility Enel together completed the world's biggest utility acquisition with the purchase of Spain's largest power producer, Endesa.

The repayments on the debt borrowed to complete the transactions was smaller than the dividends the companies earn, according to Juan Solana, an analyst at InterMoney Valores in Madrid.

What's more, construction companies were not seen as a threat at a time of takeovers among energy producers, he said.

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