Capital increases as a lifeline for Spanish businesses: failure or success?

The undercapitalization of companies in our country is a characteristic that defines many of them. An example is Limited Liability Companies that, established with the minimum capital required by law, 3.000 euros, rarely carry out capital increases in accordance with their size.

It is in times of crisis like the one we are going through, when we can clearly see how erroneous this measure is, which finds its only resolution in the contribution of financing.

One of the steps that the owner of the entity most often opts for is divestment to obtain financing for assets with low profitability or negative profitability, a decision that implies the great problem that they are limited assets. This is why the entrepreneur, whatever the size of his company, usually takes the leap to the second step, mentioned in the previous paragraph: providing financing is the only alternative, which is usually done in a mixed way, on the one hand it is provided by old or new partners through a capital increase, and on the other hand, debt refinancing agreements are made with creditors (especially financial ones).

We find examples of these measures in different IBEX35 companies that seek to overcome the situation of financing deficit or excess leverage. OHL, for example, closed a capital increase of 1.000 million euros at the end of October this year, which has led to the entry of new shareholders, with plans to allocate 632 million euros to reduce debt and about 340 to finance commitments. capital on new concessions.

Another example of this trend is Abengoa, which on August 1 also announced a capital increase and is currently maintaining agreements to refinance its debt. Furthermore, during these days the possible incorporation of a new shareholder, Corporación Financiera Gonvarri, has been announced, which would come to occupy seats on the Board of Directors that until now were occupied by the Benjumea family.

With future forecasts, FCC plans to carry out a new capital increase of around 500 million euros to reduce its debt and refinance its liabilities. This company already increased its capital by 1.000 million euros about a year ago, which represented a significant change in the shareholder composition of the entity.

From this scenario, it is concluded, therefore, that the businessman is in the position of having to face a new financial effort, which will sometimes involve a contribution of funds from his private assets. It is important that you assess to what extent this action is necessary and, if so, redefine the company through a strategic plan, addressing, if necessary, divestments or cessations of non-viable activities.

The entry of new partners can be valued as an opportunity for generational change and, in any case, it is important to try to get financial entities to participate in these measures by assuming a refinancing agreement. The Spanish Bankruptcy Law, after all the modifications it has undergone in recent months, is a good tool for this since, even with certain majorities, it can force the agreement by dragging along financial creditors with mortgage guarantees.

Jordi Castells

Economist and Partner at INSOLNET Soluciones Concursales.