Spain’s Colonial on Verge of Being Sold

After a few days of on-and-off negotiations, it appears that the Investment Corp. of Dubai (ICD) will buy Spanish real estate giant Inmobiliaria Colonial SA, though as of Thursday afternoon, no deal had been definitively announced.It is also possible, according to a report yesterday afternoon by Reuters, that the ICD will only buy the rental property unit of Colonial, leaving the development unit to the company’s main shareholders.Currently Colonial holds about 12 billion euros worth of real estates of various kinds, including offices and malls in Madrid and Paris, and is also a major residential developer. Colonial also owns 15 percent of Fomento de Construcciones & Contratas SA, one of Spain’s largest construction companies.However, a serious downturn in the Spanish real estate market, led by slumping residential sales, has left Colonial with about 8.6 billion euros worth of debt after a number of recent acquisitions by the company.A year ago, Colonial traded at about 5 euros a share. Today it’s trading at 1.15 euros a share.If completed, the deal would represent another significant investment by a sovereign fund in U.S. or European assets, which have received a good deal of attention lately, especially in the international financial sector. Recently, for example, three such funds–that of Singapore, Kuwait and Saudi Arabia–took large stakes in Citigroup, and a Chinese-government fund has taken pieces of Bear Sterns, Morgan Stanley and the Blackstone Group in the last 12 months.ICD, created in 2006, currently has about $82 billion in assets. Taking advantage of rising oil prices, the decline in real estate prices, and the weak U.S. dollar, the ICD has invested heavily in hotels and other real estate, especially in New York and London, in the last six months.