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Posts tagged ‘concessions’

THE RESCUE OF SPANISH MOTORWAY CONCESSIONS

The economic crisis has blown up several mantras that had been repeated in recent times in Spain. There is no doubt about the first mantra, the one that says that the price of housing never lowers, just a short drive away is the one that ensures that the traffic estimates always fall short.

However, assuming these two topics have generated two situations hardly affordable by those who invested in assets related to housing and infrastructure. Thus, without addressing the causes that led to such investments, the need for concessions or the traffic calculation methods, we observe quite different consequences in the decision being taken to both problems.

Let us start with housing, we have two main stakeholders, mortgage holders and borrowers, which are citizens and financial institutions respectively. In this case, as it is well known, the Spanish mortgages have had to pay its debt under the possibility of losing the ownership of its assets in the event of default, also assuming, in most cases, an underestimation on the market prices of their assets.

Let us continue with infrastructure concessions, we already have two key stakeholders, concessionaires / construction companies and the state. In this case there is underestimation of investments due to lower traffic levels in the concessions and, therefore, the state is going to rescue several concessions (http://urlcut.com/1xvha). In this case, the state seems to be paying for the initial mispricing made. This payment, in one way or another, seems that must be settled by generating more national debt, and we already know who finally pays for it. It should be noted that in this case, there seems to be a surprising parliamentary consensus about the need for rescuing the concessions.

As we can see, we are confronted with two quite different ways to proceed with two similar problems of undervaluation of assets and lack of income to debt payments. However, in my opinion, the headline comes now. Even if we understand the concessions rescue, what will happen with the ownership of the infrastructure assets? In the case of housing, as seems reasonable, the property passes to the ones who finally take over the debt. This is not the case for infrastructures. The argument put forward is that when you are talking about concessions, the infrastructure is public in itself, since it will finally reverse as a public property, therefore, little can be done on the subject property.

To that argument, I venture to point out that the concessionaires have a market value which reflects the value of their investments in infrastructures. Thus, if the concessions are doing well, their stocks go up and if concessions are doing badly, their stocks go down. Therefore, I understand that it is fully justified to enter in the capital of the concessionaries, which are the organizations that are supporting the concession, because, as I explained above, you cannot enter in the property of the infrastructure.

This can be defended through three points that reinforce the central idea. Firstly, the concessionaries paid dividends to shareholders regardless of whether the money comes from profits or form the rescue of the concession (Link to information on the provision of dividends of companies in the Spanish IBEX35 in 2010 http://urlcut.com/1xvkp). Secondly, the concessionaires have the “healthy habit” to renegotiate each concessions independently, i.e., if one goes wrong, they renegotiated that concession regardless of the overall balance of their entire investment that may well be positive (suppose we have three factories, one is wrong and the other two are well. Well, we could try to collect benefits from the factories that do well and raise money from the government for the factory that goes wrong).Thirdly, no one remembers Gordon Brown nowadays, but neither the acclaimed Obama, Merkel or Sarkozy dared to do what this leader did during the banking crisis. He provided capital to financial institutions, but in return the British government became part of the shareholders of the banks that were intervened, reaching, for example, up to 70% of the shares of Royal Bank of Scotland (http://urlcut.com/1xvhd).

Summarizing what we said, it seems that we are paying even we bet to both red and black.

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