Abengoa thermal solar plant is seen near Seville, Spain. The Spanish firm is seeking to raise capital and dispose of assets to cut debt and bolster its cash position.


Abengoa’s latest plan to shore up its finances may not be enough to regain the market’s confidence.
Investors are building bets against the Spanish renewable energy company. Contracts insuring Abengoa’s debt were the most traded in the world last week and signal a 94% probability of default within five years, up from 65% in January. BlackRock and Carmignac Gestion are taking short positions in its stock.
Abengoa is seeking to raise capital and dispose of assets to cut debt and bolster its cash position. It’s also trying to simplify a complicated financial structure including €9.8bn ($10.9bn) of gross debt that investors have been looking at more closely since November.
“An increasing number of market participants view a default of the company as a likely scenario and don’t believe in Abengoa’s ability to successfully execute the capital increase,” said Felix Fischer, a credit analyst at independent research provider Lucror Analytics in Singapore. Lucror has a hold recommendation on Abengoa’s bonds and credit swaps and sees its default risk as “high.”
Abengoa said its credit-default swaps don’t represent the company’s creditworthiness or the value of its assets.
“Abengoa owns a number of very valuable businesses and assets,” the company e-mailed in response to questions. “We continue to make progress both in the capital increase and the divestiture plan.”
The company said it will complete €500mn of asset sales by the first quarter of 2016, in addition to the €650mn capital increase, according to a regulatory filing.
Swaps on Abengoa’s debt signalled a record 97% probability of default on Wednesday and are the second-highest of any company or country after Venezuela, according to data provider CMA. A total of 545 contracts covering a gross $495mn of Abengoa’s debt changed hands last week, Depository Trust & Clearing Corp data show.
Total short positions on the company’s shares jumped to 8.5% of equity on August 7 from 6.68% on July 24, according to Spanish securities regulator CNMV. BlackRock, which hired Abengoa’s former Chief Executive Officer Manuel Sanchez Ortega last month, Carmignac, Och-Ziff Capital Management Group and DE Shaw & Co are among investors betting against the company.
Abengoa said in May that Sanchez Ortega left for “strictly personal reasons” and would remain a board member, while naming him to the international advisory council. He gave up the board position after joining BlackRock and kept a position on the advisory council, Abengoa said on July 27.
Sanchez Ortega’s role as head of strategic development and head of BlackRock’s Latin American infrastructure group is unrelated to funds trading Abengoa’s securities, said Stephen White, a spokesman for the world’s biggest money manager in London.
Abengoa’s bonds also signal stress. Its €500mn of 6% notes maturing March 2021 dropped to a record 45 cents on Wednesday, according to data compiled by Bloomberg. The €265mn of 5.5% notes due October 2019 issued by Abengoa Greenfield fell to 42 cents on Wednesday.
“The CDS and bond prices suggest that the market believes that a default is a real possibility,” said David Newman, head of high yield at Rogge Global Partners in London, which manages more than $50bn and doesn’t hold Abengoa’s bonds or stock.
Investors are concerned that the company’s debt structure is opaque and difficult to understand, he said. Seville-based Abengoa has hundreds of projects and subsidiaries, and raises funding to build power lines, water plants, solar and biomass plants worldwide.
The company classifies short-term bridge financing for projects as “non-recourse debt in process,” even though it’s guaranteed by the parent. When projects are completed, Abengoa refinances the loans with long-term debt that doesn’t have a claim on the company.
Until November, all of Abengoa’s bonds were categorised as corporate debt. Then, it reclassified some bonds as non- recourse-in-process bridge financing. The move surprised creditors, even though it was allowed in the documentation of those specific securities and still had corporate guarantees.
Abengoa surprised the market again last month by saying it would change guarantees on its convertible and exchangeable bonds to align them with its high-yield securities. That diluted junk bondholders’ claims and added to confusion about the company’s accounting methods.
In its earnings report on July 31, Abengoa said that corporate free cash-flow for 2015 will be as much as €800mn lower than previously forecast. It also cut its 2015 guidance for revenue and earnings before interest, tax, depreciation and amortisation as well as for net corporate leverage.
Abengoa held a conference call with investors for almost three hours after the market closed that day, a Friday. On the call, new CEO Santiago Seage answered a question about a possible equity injection by saying, “the company has no plan to do what you were suggesting - to tap capital markets in any manner.”
“Abengoa relies on funding, but keeps surprising and disappointing the people that give it that funding,” said Robert Baltzer, an Edinburgh-based investment manager at Baillie Gifford & Co, which oversees about 115bn pounds and holds some of Abengoa’s bonds. “They have a job to patch things up with investors.”
Existing shareholders will have preferential rights to buy the new shares, and Abengoa’s main shareholder, Inversion Corporativa IC, will participate in the sale with new funds, the company said.
The closely held investor and Abengoa share the same chairman, Felipe Benjumea Llorente. Calls to him were directed to Abengoa’s press office.
“Inversion Corporativa is a separate company,” according to an e-mailed statement from the press office on Thursday. “After consulting with them, they confirm that Mr. Benjumea is the chairman of IC and that, as it has publicly stated, IC will participate in the capital increase.”
Investors are still concerned that shareholders may not support the sale nor banks fully underwrite it, according to Lucror’s Fischer.
Inversion Corporativa, which controls 57.5% of Abengoa, helped fund the last capital increase with a loan backed by existing stock, according to its 2013 earnings report filed to the Madrid mercantile registry.
The falling value of Abengoa’s shares is fuelling investor concern that it may not be willing or able to anchor another capital increase by borrowing again, Fischer said. It’s unclear what other resources they have, he said.

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