Citigroup fund to acquire road operator arm of Spanish construction major for $10 billion

Spanish construction company Sacyr Vallehermoso SA has decided to sell highway operator Itinere Infraestructures SA to a Citigroup Inc fund, Citi Infrastructure Partners, in a transaction valued at €7.9 billion ($10 billion) to cut debt. The purchase value comprises €2.87 billion in cash and €5 billion of assumed debt.

Sacyr, Spain's fifth-largest construction company, ended September with €16.5 billion of debt, more than seven times its market value, after the company increased borrowings to expand in energy and counter a slump in domestic construction. In 2006 it spent €6.5 billion to buy a 20 per cent holding in oil company Repsol YPF SA. Russia's OAO Lukoil has expressed interest in buying a stake, which would include Sacyr's holding.

The deal will allow Sacyr to lower its debt by as much as 37 per cent, from €19.73 billion to €12.48 billion, the company added. Citi will offer to buy 100 per cent of Itinere at €3.96 per share, Sacyr said. The Spanish builder will first sell a 42.8 per cent stake to Citi and another 11.6 per cent once the first transaction is complete, the builder said. Itinere closed at €3.37 euros on 28 November.

The transaction won't include Itinere's stakes in non- highway concessions such as hospitals or transport hubs and it also excludes stakes in eight highways including Madrid South and Madrid Levante, the filing said. Sacyr will acquire those investments for €478.3 million, the company said.

Under the deal, which is dependent on regulatory approval, 8.34 per cent of Itinere will be transferred to savings banks from Spain's Basque region including Caja Vital. Sacyr also said that Citi had made a separate agreement to resell some Itinere highways in Spain, Portugal, Brazil and Chile to infrastructure companies Abertis Infraestructuras SA and Atlantia SpA.

Investment funds, construction companies, buyout firms and pension funds are competing for assets such as toll roads, airports and ports that offer a steady flow of earnings. Infrastructure funds raised at least £20 billion ($30.5 billion) over the past three years for acquisitions in the UK and Europe, a study by Deloitte Touche LLP in March showed. Goldman Sachs Group Inc., JPMorgan Chase & Co. and Citigroup are among banks that have raised such funds. (See: Morgan Stanley global infrastructure fund exceeds target $2.5-billion target; closes at $4 billion / SBI, Macquarie, IFC to float $2 billion infrastructure fund / 3i to establish $1-billion India Infrastructure Fund )