In Spain, a Debt Crisis Built on Corporate Borrowing

Saddled with a 9 billion euro ($11.7 billion) debt pile that is twice the size of the company’s shrinking market value, A.C.S. is in the midst of a frantic campaign to sell off assets, pay down debt and further distance itself from a Spanish economy caught in a spiral of austerity and deflation.

The Spanish government’s harsh budget cuts and their depressive effect on the economy have prompted foreign investors to sell Spanish stocks and bonds in droves. On Tuesday, Spanish stocks plunged 2.8 percent and the government’s 10-year bond yields spiked to 6 percent as Spain moved to bail out its ailing banks, and uncertainty over Greece loomed.

But economists now say that one of the greatest threats to Spain could well be the snarl of debt choking off the growth prospects of A.C.S. and other highly indebted Spanish corporations. And they warn that as these companies cut back on investments and shed assets as well as jobs, the result could be a Japan-style lost decade of stagnation.

An important metric in the euro zone debt crisis has been government debt as a percentage of the total economic output, and Spain has a relatively low ratio of 70 percent, compared with 165 percent for Greece and 120 percent for Italy.

But according to a recent report by McKinsey on global debt, Spain’s nonfinancial private sector debt is 134 percent of gross domestic product, higher than any major economy in the world with the exception of Ireland, where the figures are skewed by the outsize presence of foreign multinationals. Factoring in bank, household and government obligations, the total figure rises to 363 percent of G.D.P., trailing only Japan at 512 percent and Britain at 507 percent.

“The problem in Spain is not government debt, it’s private sector debt,” said Jonathan Tepper of Variant Perception, a London-based research boutique with a specialty in Spain. “A.C.S. perfectly captures this problem.”

Under the stewardship of its ambitious chairman, Florentino Pérez, A.C.S., like many other corporations in Spain during the recent boom, gorged on cheap debt, seeking to diversify by buying large equity stakes in companies in Spain and elsewhere.

In a bull market, this web of cross-holdings held in special-purpose vehicles and financed by bank loans can sustain a vast corporate appetite. But when the assets backing these debts plunge and the banks call in their loans, the opposite can occur.

“It is a really bad time for these companies,” said Mauro Guillen, an expert on Spanish multinational companies at the Wharton School of the University of Pennsylvania. “The government is no longer investing in infrastructure, the municipalities are no longer paying their bills and the companies are in constant need of refinancing from their banks. So they have to unload their positions to raise cash.”

With 28 billion euros in revenue, A.C.S., or Actividades de Construcción y Servicios, is one of the largest building services companies in the world. Its projects range from building subway stations in Manhattan and managing toll roads in Florida, to collecting waste in France and building wind farms in Brazil.

But for the growing legion of investors who have been betting against the company by selling its shares short, A.C.S.’s still significant exposure to Spain’s ailing construction industry and austerity-hobbled municipalities feeds their bearish outlook.

Credit Suisse, in a recent report, warned that 48 percent of the company’s cash flow comes from various Spain-related infrastructure projects. Tellingly, the bank said, 70 percent of that income depends on austerity-bound government entities.

More than anything, though, it is the 6 billion euros in debt that A.C.S. has used to buy a controlling stake of the German construction company Hochtief, and a similar but now thwarted move to take over Iberdrola, the Spanish utilities giant, that is at the heart of investor concerns.

“The debt of this company has gone out of control,” said Javier Suarez, a utilities analysts at Nomura in Madrid.

The decline of its shares has accelerated in recent weeks — the price is down 40 percent for the year and fell 27 percent in April alone — as it became clear that the more Iberdrola fell, because of concerns about regulatory pressures and its own high debt, the worse A.C.S.’s financial position became.