12/1/2008Bailed-Out Bank Goes on Toll Road Buying Binge
Bailed out Citigroup fund spends $10 billion buying 44 foreign toll roads.
Just one week after receiving a pledge of $306 billion in support from US taxpayers, Citigroup announced the intended $10 billion acquisition of a debt-laden Spanish toll road group. Citi Infrastructure Partners will hand over $3.6 billion in cash and assume $6.3 billion in debt from Sacyr Vallehermoso, the parent company of the Intinere Infraestructuras toll road group. Itinere operates 32 toll roads in Brazil, Chile, Costa Rica, Portugal and Spain and Ireland. Another twelve concessions are under construction. Sacyr today issued a statement to Spanish investors noting that the company succeeded in offloading 37 percent of its total debt to the US firm.
"With this transaction, the group reaps the value that Itinere accumulated for its mature concession assets and strengthens its financial situation by considerably reducing its indebtedness," the statement explained.
On November 23, the US Treasury announced that it had invested $20 billion in US taxpayer funds in Citigroup in addition to "protection against the possibility of unusually large losses" on $306 billion in bad debt the company had acquired primarily in commercial and residential real estate markets. Armed with the new taxpayer capital, Citigroup believes its purchase of the toll roads will hold long-term value. In the immediate term, Citigroup will sell off Itinere's stakes in five Spanish and Chilean toll roads to Spanish tolling giant Abertis, allowing that company to assume full ownership of its tolling assets. The deal is valued at $786 million.
Other analysts, including Fitch Ratings, view tolling as a risky investment as toll road volumes have plummeted in response to the recent spikes in gasoline prices and the global economic slowdown. In August, Fitch issued a warning that its outlook on tolling had changed to "negative," reflecting a dim view of the creditworthiness of the long-term transactions. In October, Citigroup and Abertis gave up on their joint bid to collect tolls on the Pennsylvania Turnpike. The consortium spent millions bankrolling a slick public relations campaign that ultimately failed to sway public opinion on the wisdom of the 75-year proposal.