Spanish armada

Spain: Prime Minister Jose Luis Rodriguez Zapatero summoned the chiefs of Spain’s top companies on November 27 with the avowed aim of enlisting their help in shoring up the economy. It’s easy to dismiss this as just another photo opportunity. But the truth is that Zapatero could learn a few things from Spain’s companies. Drunk on debt, many of them binged on expensive acquisitions at the height of the boom. After two tough years, most big private corporates have succeeded in putting their house in order, not without pain.

UBS expects net debt to EBITDA at Spanish listed companies to fall to 2.7 times next year from 3.3 in 2009. The ratio is still high, but at least it is shrinking. Some of the deleveraging is driven by rising profit. This fell in 2008 and 2009, but net profit rose some 20 per cent in the first nine months of the year for the companies in the main stock market index, according to various news reports. Over a third of profits for the IBEX-35 is generated from foreign operations, primarily Latin America but also Europe.

True, a lot of the deleveraging of the private sector is the reason why the government — which ran a budget surplus in 2006 and 2007, before the crisis hit — has had to take on debt, to stimulate the economy. But Spanish companies have also been able to take painful decisions when needed. The big construction companies have sold businesses or stakes in important assets - that’s the case of ACS, Ferrovial or Sacyr, whose debt situation may be stabilising. Others are in better shape. Inditex, owner of the Zara retail stores, saw profits rise 68 per cent in the first half of the year and Repsol just hiked its dividend. Some — like Telefonica, Santander or BBVA — are back on the acquisition trail.

Commentators point out that the great and good of industry don’t represent the Spanish economy, which is packed with small, unproductive companies. This may be true. But Spain’s largest companies are generally well run, used to dealing with fickle markets, and have managed to fight their way to the top in several industries. Zapatero could certainly use some advice.