Colonial, Metrovacesa pull out of mall deal

By Sarah Morris

MADRID, Sept 6 (Reuters) - Debt-laiden Spanish property companies Colonial (COL.MC: Quote, Profile, Research, Stock Buzz) and Metrovacesa (MVC.MC: Quote, Profile, Research, Stock Buzz) have pulled out of a project to develop the largest mall in Spain, due to a difficult market, Metrovacesa said on Saturday.

Riofisa, a Colonial subsidiary which specialises in shopping centre developments, set up a 50-50 joint venture with Metrovacesa to buy 150,000 square metres of land in Madrid for 238 million euros ($340.4 million).

However, ailing Colonial -- which has debts of around 8.9 billion euros -- told Metrovacesa it had decided not to go ahead with the purchase of the land for which the pair had already paid 10 percent, a Metrovacesa spokeswoman said.

"They (Colonial) decided to exit the project and we decided it wasn't the best moment to look for another partner," she said, confirming a report in Spanish paper La Gaceta de los Negocios on Saturday.

Property companies in Spain, which enjoyed a golden decade, are now struggling with the end of a domestic real estate boom and the global credit crunch, which is making debt more expensive and harder to secure.

On Friday, a source familiar with Colonial's debt situation told Reuters the firm was due to meet creditors and shareholders next week to reach an 8.9 billion euro refinancing deal aimed at saving the company from bankruptcy.

Market watchers are speculating whether Colonial will be Spain's next property casualty, going the way of the sector's biggest firm Martinsa Fadesa (MFAD.MC: Quote, Profile, Research, Stock Buzz), which went into administration in July.

Metrovacesa had net debt of 7.14 billion euros at the end of June. According to sources close to the situation cited by Gaceta, Metrovacesa has until November to refinance debt of 1.02 billion euros.

SEARCH FOR NEW DEVELOPER

As a result of Colonial and Metrovacesa pulling out of the mall contract, managers of the development will have to find a new developer.

Until now, several property firms have cited commercial property building and management as a safe haven compared to the residential market which has an excess of homes.

The Atlantys shopping centre was part of a much-touted 11 million square metre development in Valdebebas, near Madrid airport's Terminal 4.

Local authorities in Madrid and those managing the Valdebebas project have said the site will boast modern new courts, trade fair facilities, and thousands of new homes, with the first due for completion at the end of next year.

Riofisa had already signed up French hypermarket chain Carrefour (CARR.PA: Quote, Profile, Research, Stock Buzz) to occupy 15,000 square metres of the mall, La Gaceta said.

(Reporting by Sarah Morris; editing by Chris Pizzey)