Bill Gates And The Spanish Recovery

You would have to think that Bill Gates has some shrewd investment advisors. You would also have to think that the co-founder of Microsoft might typically invest in technology stocks. Thinking this, then what does one think of Gates having acquired a six per cent holding in Fomento de Construcciones y Contratas? Yes, a construction company. One that deals with bricks and mortar and one that is also Spanish. Remember Spanish construction companies? The ones who helped push the country to the edge?

The purchase makes Gates the second largest shareholder in FCC, some considerable distance behind Esther Koplowitz, who developed a construction firm that she and her sister had inherited from their father, and one that, through merger, became FCC in 1992. Sra. Koplowitz controls 53.9% of what is one of Spain's biggest construction concerns.

But why would Gates be interested in a construction company, and a Spanish one at that? And why would FCC be interested in him becoming a shareholder? The answer to the latter may have to do with the company being in the midst of a restructuring of both debt and strategy. It returned a significant loss in the first quarter this year, partly because of a write down in the value of its renewable energy assets, a move probably in response to the Spanish Government having gone cold on renewables, especially solar, as it seeks to tackle the enormous energy tariff deficit. Otherwise, FCC was, as with the rest of the construction sector, badly hit when public-sector projects were cut and when the property market went belly-up.

Nevertheless, FCC is a company in reasonable shape thanks to its diverse operations and its global status. It is active in 55 countries and its business operations are not confined to mere bricks and mortar. There are environmental services, for example, as well as construction of an industrial nature. It is said that  Gates is taking a punt on a recovery in the Spanish construction market. I'm not so sure that someone like Gates either takes a punt or takes one on something as potentially volatile as simple construction. My guess is that it is FCC's global operations, its investment in various technologies, such as with environmental services, and potential in emerging and less-developed markets that has attracted Gates. One can perhaps be persuaded too much that he is an investment benefactor and philanthropist rather than a hard-nosed investor, but I would suggest there is a fair element of the former about his interest in FCC, and FCC would probably feel it could benefit from an association with a universally recognised businessperson who has become known for wishing to pursue good works. As FCC says on its website, it invests globally in "technology, improving processes and developing eco-efficient communities". Bill Gates as part of this? Yes, it would make some sense.

However one interprets Gates's investment, it is an encouraging vote of confidence in a major Spanish company, and it is evidence of what the president of the Santander bank said recently about money "coming in from all directions" into Spain. FCC, with its overseas operations, is evidence also of the export-led recovery of the Spanish economy. These are feelgood elements which will allow the government and others to point to the corner having been turned, but how real are they? The economy may move into growth on the back of exports - tourism and global actors like FCC - but how much impact does this have on the home market, given that, for example, so much of the export earning from tourism is not actually kept in the home market because it is earned by overseas tour operators and airlines? Moreover, what are the targets for all the money that is coming in from all directions? One is real estate, the consequence of an adjustment in property markets which has made Spain attractive to inward investors. Yet, there is a fair amount of evidence to suggest that much of this investment is being directed towards speculative commercial real estate and in particular the rental returns on investment from commercial property. The feelgood element is also being felt in the stock market, but where it isn't being felt is in actual, productive investment, something which might stimulate the domestic market, create employment, increase consumer demand and so effect a more balanced growth in the economy.

Still, things are better and psychologically, if nothing else, Spain may be moving in the right direction. But for the time being it is a psychological boost enjoyed more by investors and bankers than by the man in the street. There is a long way to go yet.