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Spanish Firm That Lost £500M On Two London Deals Plots Largest-Ever European Real Estate IPO

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HSBC's HQ in Canary Wharf was one of the first overseas assets bought by a Korean investor.

Metrovacesa is synonymous in London with two deals that pushed the company toward collapse.

But it is on the verge of undertaking what would be by far the largest initial public offering of a European real estate company, according to the FT.

The company could raise as much as €2.6B as the banks that own it sell their stakes and a portion of the company goes public. If an IPO of that size is achieved it would eclipse the $3B (€2.5B) raised by logistics firm GLP when it floated in 2010.

At the top of the last boom, Metrovacesa lost around £500M on two purchases before currency movements.

In April 2007 it bought the London headquarters of HSBC in Canary Wharf in a sale and leaseback for £1.1B in what at the time was the largest-ever U.K. real estate deal.

The problem was, it used an £810M bridge loan from HSBC to buy the building. The credit crunch descended, Metrovacesa was unable to refinance the loan when it came due 18 months later, and HSBC bought the building back for £838M in autumn 2008. HSBC resold the building to Korea’s National Pension Service for more than £1B.

In July 2007, Metrovacesa agreed to pay Legal & General £240M for the Walbrook Square development site in the City, and committed to spend £600M on the development of four new buildings there.

In August 2009, it agreed to pay the full £240M purchase price in exchange for pulling out of the commitment to develop the site. M&G bought the freehold and Bloomberg opened its new HQ on the site late last year.

The losses helped push Metrovacesa toward insolvency, and its lenders, to whom it owed more than €7B, took control of the company. They slowly nursed it back to health, and last year began the process of selling out of the business.

Last June Spanish REIT Merlin bought Metrovacesa’s Spanish commercial real estate business for €1.7B.

The IPO being planned will be of Metrovacesa’s housebuilding arm, and its sale will highlight the revival of the once-distressed Spanish residential market. Last year Lone Star floated fellow Spanish residential developer Neinor for €1.3B. Metrovacesa will look to build 5,000 new homes in the next year.

Related Topics: HSBC, Bloomberg HQ, Metrovacesa