Hedge funds increase bets against Spain’s OHL
Hedge funds have upped their bets against the shares of Obrascón Huarte Lain, one of Spain’s largest construction companies, to the highest level in a year as concerns mount over the interlinked debts of the company and its biggest shareholder.
The rise in short positions comes as Juan Miguel Villar Mir, one of Spain’s richest men, this week reorganised his stake in OHL, a large part of which is pledged to banks as collateral for loans. He holds his stake through the private conglomerate Grupo Villar Mir, which is OHL’s largest investor.
Shares in OHL have lost more than 80 per cent of their value since the company last October raised €1bn in a rights issue. At the time, OHL said the proceeds would be used to repurchase €300m of bonds, however it only bought back €46m.
Debtholders this week questioned OHL’s decision to now spend money buying back shares, which plunged in value after the company announced large losses for the second quarter on July 29.
“It makes no sense,” said one debt investor who described the decision to buy back equity as “bizarre.”
OHL said that it was being attacked by hedge funds and they launched the share buyback to bolster investor confidence in the company. The company also said the low amount of bonds bought in October was due to investors not tendering their debt.
OHL is the latest of Spain’s large construction businesses to face difficulties in the aftermath of the eurozone crisis. Several of the country’s builders have in recent years been forced to sell assets to trim their large levels of debt. One of these, Abengoa, defaulted on its bonds last year while another, Isolux, gained agreement for a restructuring of its debt in July.
The amount of OHL shares out on loan, a proxy for short positions, has hit 8 per cent of its total shares outstanding, according to Markit. Marshall Wace, WorldQuant and Oxford Asset Management have all disclosed bets against the construction group, according to Spanish regulatory filings.
Holders of the company’s bonds say they are worried about potential “leakage” of cash — by transactions such as share buybacks — from OHL to Mr Villar Mir’s holding company, as well as to other equity holders, which could reduce the amount of funds available to repay creditors.
“It’s just the wrong sign to all the bondholders if you give cash back to shareholders given such poor results,” said Jannik Prochnow, a fixed-income analyst at Berenberg.
One debt investor who used to own the company’s bonds described the builder as “complicated and capital hungry”.
Shareholders in Obrascón Huarte Lain appear to have also taken fright at a complicated financing arrangement that Mr Villar Mir entered into with the Monaco-based hedge fund Tyrus Capital.
The contract was signed between Grupo Villar Mir and Tyrus after the hedge fund took an 8 per cent stake in OHL as part of an emergency fundraising round last year.
While the exact details of the contract have not been made public the company has said that under the terms Tyrus and GVM will share any losses and gains made on the stake. Shares in OHL are down more than 70 per cent since Tyrus agreed to the deal in October.