Under the commotion of the move to the Netherlands of the head of the Ferrovial Group, a compelling financial reason for the future of the group emerges: the management of more than 3,000 million euros in bonds that it has listed on the markets and that faces the impact of the current rate hike cycle. The infrastructure manager now pays just 40 million euros in annual coupons for the service of its listed debt, with an investment grade rating (BBB+), but that will make it more expensive as it faces its refinancing and investment in new projects.
In fact, as part of the reverse merger process with FISE SE and the listing on Euronext Paris / Amsterdam, Ferrovial has announced that it will recommend a series of perpetual hybrid bonds for 500 million euros with an annual coupon of 2.12%. Its price was cause for concern because it had been falling for more than a year, until trading at a 20% discount and with its profitability rising in the secondary market. The Spanish company has put out this fire and the bond’s price soared this Wednesday until it returned to ‘even’ levels after the buyback announcement.
The current interest curve of its debt is contained but it will become more expensive as Ferrovial returns to the market to refinance its current liabilities or finance future projects. Along with the hybrids, the front construction company also next September a maturity of another series of bonds valued at 500 million for which it pays only 0.37%. The rest of the issues mature between 2024 and 2028 with coupons ranging between 0.54% and 2.5%, well below what investors now require.
The new corporate financing scenario puts pressure on infrastructure companies like Ferrovial because they need capital to be able to build their project. The Del Pino family company has a net cash of 1,400 million euros without counting the projects in which it is involved. With them, the net debt exceeds 5,400 million.
With the Dutch umbrella, Ferrovial will be able to access better financing conditions. The interest on the Dutch 10-year bond is above 3% this Wednesday, while the Spanish one for the same term climbed to 3.8%, 80 basis points more than the country risk premium. The Netherlands has a triple A rating based on its public accounts, a status that only a select group like Germany, Canada, the US, Switzerland, Luxembourg or Norway, among others, have. Spain has A (S&P), A- (Fitch) and Baa1 (Moody’s), between five and seven notches less.
The sovereign rating of each country acts as a reference when setting the cost of debt for companies and this will allow Ferrovial to reduce the cost of its future issues from the Netherlands. In fact, its debt issuing arm from which all its bonds hang is already a company from that country, as is the case with other multinationals such as Telefónica and other Ibex firms.
The trauma and the experience of the ‘boa’ with BAA
In the world of debt there is a division into two camps based on the fine line that hides between the ‘BBB-‘ and ‘BB+’ ratings assigned by firms such as S&P, Fitch or Moody’s. On one side are the so-called ‘investment grade’ (IG), which pay less interest on the money they borrow. On the other, the junk or speculative bond (High Yield-HY). Ferrovial is well aware of the difference in belonging to one or the other club for the last fifteen years, and has been aware of why it maintains the suitable grade (between BBB- and BBB+) after the difficulties that occurred during the financial crisis of 2007 and 2012.
In 2006, Ferrovial caused an international stir with the purchase of the British airport company BAA (Heathrow, Gatwick) for more than 12,000 million euros, three times its size at the time. The operation catapulted him to the international forefront of the infrastructure sector, while tying his future to the management of the debt he acquired to buy it because he did not finish digesting the operation until years later.
The British press graphically described the Spanish operation as a boa eating an elephant. The outbreak of the subprime crisis in 2007 put Ferrovial on the ropes until it bottomed out in March 2009 with a stock market valuation of less than 2,000 million euros after collapsing more than 50% due to uncertainty about the debt and despite the gigantic owned by BAA airports. After almost five years of divestments, the multinational saw S&P’s BBB- rating in 2011, which allowed it to refinance almost all its debt.
To Wall Street through Euronext and Holland
After that trance, and after multiple corporate operations and awarding of concessions, Ferrovial is now worth 10 times more on the stock market than in 2009, around 20,000 million. The company gets almost 40% of its revenue from the US and another 25% from Poland. After the income in US dollars and Polish zlotys, Spain stands with 15% of the business, in euros. In fourth place now appears the United Kingdom, with barely 7% of the total weight, which became the largest market in the group with BAA. But divestments and Brexit have led the Spanish group to leave the country.
The choice of the Netherlands and Euronext (Paris, Amsterdam, Lisbon) to list the shares of Ferrovial of the new Dutch parent company is not accidental. In addition to the greater stock market liquidity and investor activity than in BME, owned by the Swiss company SIX since 2019, Ferrovial will have the possibility of standardizing the processes for listing on Wall Street automatically. Few companies have chosen this route to be listed in the US, although among them is the technology company Lleidanet., which made a ‘listing’ of its shares on Euronext for the US market.
Another path to reach the American market is the one chosen by The Catalan company chose to merge its Dutch parent company with a SPAC (blank check ETF) in order to be listed as a United States company for all purposes. In addition, this formula is articulated as a capital increase in which the company raises funds for its own balance sheet.
Ferrovial’s case will be different due to its size, which will greatly multiply the previous two. The pharmaceutical company Grifols is the mirror in which it can best reflect itself due to its extensive presence in the US – most of its business is there – and the company’s connection to the Netherlands through its shares and debt issues. Grifols has a triple system of shares: class A and B securities listed in Spain and an ADR program (certificates for foreign shares) that is listed in dollars, but which has some limitations compared to the common shares with which it is listed. eg Wallbox.
