Hold/TP:€22.60/CP:€16.19
Grupo Villar. Mir (GVM) has released an update of its financial position, including a restructuring of the group' s debt facilities
Background: Apart from the participation in OHL (58% stake), GVM has stakes in Inmobiliaria Colonial, owns Inmobiliaria Espacio (real estate), Fertiberia (fertilizers) and Ferroatlántica (ferroalloys). The LTV of GVM is below 30%. The OHL stake represents less than 30% of the group's GAV. However, before this debt restructuring, close to 86% of GVM's debt (€891mn out of a total €1,042mn) had the participation in OHL as a guarantee. This resulted in quite demanding OHL margin calls at GVM.
Debt Restructuring GVM has secured a new facility with the Ferroatlántica shares as a guarantee. Following the merger of Ferroatlántica & Globe, (GVM would own 57% of the new entity), the group's ferroalloys unit would become publicly listed? (with a USD1.9bn shadow value for the 57% stake) and would therefore be more liquid. Most of these new funds have been used to reduce the GVM debt guaranteed on OHL and also to free up Inmobiliaria Colonial shares.
Changes Affecting OHL: (1) The margin loan is cut from €329mn to €255mn. Assuming the same margin call VTL (1.55), the margin call would be reduced from €17.50/share to €13.50/share. (2). The equity swap is cut from €75mn to €59mn. Assuming the same margin call VTL (1.3x), the margin call would be reduced from €16.90/share to €12.81/share. (3) The number of unpledged OHL shares is now 1.7mn (1.7%, as of 1Q15) vs 0.8mn (0.8%) before the debt restructuring.
Net/net. GVM has made use of the value crystallization following the Ferroatlántica-Globe merger and of existing headroom in the group's leverage to move debt out of OHL to other parts of the group. This significantly reduces the margin call levels, removing the uncertainty of potential flow back of OHL shares in the market. Our Hold rating on OHL is based on: (1) the lack of visibility on two main value drivers: OHL Mexico's market performance & recovery of the receivables trapped in litigation; (2) the group's high leverage & limited FCF generation; and (3) the lack of SOTP upside at market values of Abertis (Buy, TP €17.10) and OHL Mexico.
