Spanish Government Steps In to Support Talgo Amid Financial Challenges
SEPI and ICO collaborate on a financial strategy for Talgo as part of a planned investment involving Sidenor and regional funds.
The Spanish government, through its public entities SEPI (State Industrial Participations Company) and ICO (Institute of Official Credit), is preparing a comprehensive financing strategy aimed at stabilizing Talgo, the Spanish train manufacturer, and facilitating a change in ownership of the company.
Sources familiar with the negotiations indicate that SEPI and ICO have been mandated to support a proposed investment by Sidenor, a steel company led by José Antonio Jainaga, along with the public Basque fund Finkatuz and banking foundations Vital and BBK.
This consortium aims to acquire a total of 29.77% of Talgo's capital, equivalent to 36,870,994 shares.
The initial payment for this stake has been set at 153 million euros, with performance-related adjustments based on the business plan's execution in 2027 and 2028. Sidenor is expected to contribute around 45 million euros, amidst uncertainty stemming from U.S. tariff policies during Donald Trump's administration.
While the U.S. is not a primary market for Sidenor's production, the company may still experience negative impacts from a potential oversupply of steel in Europe, should U.S. import barriers be enacted.
Public capital is being directed not only to support Sidenor but also to strengthen Talgo in preparation for the new shareholders, whose entry was initially scheduled for March 2023. The deadline for completing this agreement was pushed back after the initial deadline of May 15 was missed, extending the exclusivity period until June 15, following an agreement reached on February 14, that priced the shares at 4.15 euros each.
The operation is supervised by Spain's Ministry of Transport, and involves collaboration with the Ministries of Economy and Finance.
SEPI and ICO are poised to lead a comprehensive financial solution for Talgo at a critical juncture, as the company has been seeking to refinance 400 million euros in debt, unsuccessfully to date, prior to the advent of the new shareholders.
Major banks, including Santander, Caixabank, and BBVA, have placed conditions on their support, including deferring a substantial penalty of 116 million euros imposed by Renfe, Spain's national railway company, for delays exceeding two years in delivering 30 Avril high-speed trains.
The penalty had been validated by Renfe's board of directors as per the train purchase contract.
Although Talgo has not withdrawn this financial burden, Renfe has granted a lengthy deferral, proposing a five-year grace period followed by a repayment plan stretching from 2031 to 2038. Additionally, SEPI is expected to offer a convertible loan approximating the debt owed to Renfe, which is already accounted for in Talgo's 2024 financial statements, potentially paving the way for future government equity participation in Talgo.
The management of Talgo, led by Carlos de Palacio and Gonzalo Urquijo, has sought to have the penalty lifted, citing pandemic disruptions and inflation as contributing factors to the delivery delays.
Talgo has stated its intention to challenge the penalty legally while requesting Renfe to adjust the contractual budget for the 30 trains to accommodate increased material costs.
Renfe has long rejected this request, citing the absence of price review clauses in the contracts.
The new Avril train fleet operates in the high-speed commercial service sector, which is not subsidized by the government, unlike obligations for public service, where Renfe has been more open to reassessing orders from suppliers Alstom, Stadler, and CAF.
In a recent letter addressed to Renfe's president, Álvaro Fernández Heredia, Carlos de Palacio acknowledged the company's financial vulnerability due to the impact of the Avril trains project, which has hindered both debt refinancing and the entry of Basque investors led by Jainaga.
As a result, Talgo recorded losses of 108 million euros in the previous fiscal year, with the current 2025 financial year commencing with reduced production rates and additional losses of 7.1 million euros, compared to a profit of 10.4 million euros for the same period in 2023.
Talgo's financial statements submitted to the Spanish Securities Market Commission (CNMV) up until the end of March contained two significant admissions: the company is renegotiating a contract with DB for 79 long-distance trains and has lowered its revenue expectations for the year (originally forecasted over 600 million euros in revenue with an EBITDA margin of 11%).
The issue of production capacity continues to manifest in Talgo's facilities in Rivabellosa and Las Matas, despite a backlog exceeding 4 billion euros in contracts and a recent multimillion-euro contract for 65 trains for Flix worth 2.4 billion euros.
Sources familiar with the negotiations indicate that SEPI and ICO have been mandated to support a proposed investment by Sidenor, a steel company led by José Antonio Jainaga, along with the public Basque fund Finkatuz and banking foundations Vital and BBK.
This consortium aims to acquire a total of 29.77% of Talgo's capital, equivalent to 36,870,994 shares.
The initial payment for this stake has been set at 153 million euros, with performance-related adjustments based on the business plan's execution in 2027 and 2028. Sidenor is expected to contribute around 45 million euros, amidst uncertainty stemming from U.S. tariff policies during Donald Trump's administration.
While the U.S. is not a primary market for Sidenor's production, the company may still experience negative impacts from a potential oversupply of steel in Europe, should U.S. import barriers be enacted.
Public capital is being directed not only to support Sidenor but also to strengthen Talgo in preparation for the new shareholders, whose entry was initially scheduled for March 2023. The deadline for completing this agreement was pushed back after the initial deadline of May 15 was missed, extending the exclusivity period until June 15, following an agreement reached on February 14, that priced the shares at 4.15 euros each.
The operation is supervised by Spain's Ministry of Transport, and involves collaboration with the Ministries of Economy and Finance.
SEPI and ICO are poised to lead a comprehensive financial solution for Talgo at a critical juncture, as the company has been seeking to refinance 400 million euros in debt, unsuccessfully to date, prior to the advent of the new shareholders.
Major banks, including Santander, Caixabank, and BBVA, have placed conditions on their support, including deferring a substantial penalty of 116 million euros imposed by Renfe, Spain's national railway company, for delays exceeding two years in delivering 30 Avril high-speed trains.
The penalty had been validated by Renfe's board of directors as per the train purchase contract.
Although Talgo has not withdrawn this financial burden, Renfe has granted a lengthy deferral, proposing a five-year grace period followed by a repayment plan stretching from 2031 to 2038. Additionally, SEPI is expected to offer a convertible loan approximating the debt owed to Renfe, which is already accounted for in Talgo's 2024 financial statements, potentially paving the way for future government equity participation in Talgo.
The management of Talgo, led by Carlos de Palacio and Gonzalo Urquijo, has sought to have the penalty lifted, citing pandemic disruptions and inflation as contributing factors to the delivery delays.
Talgo has stated its intention to challenge the penalty legally while requesting Renfe to adjust the contractual budget for the 30 trains to accommodate increased material costs.
Renfe has long rejected this request, citing the absence of price review clauses in the contracts.
The new Avril train fleet operates in the high-speed commercial service sector, which is not subsidized by the government, unlike obligations for public service, where Renfe has been more open to reassessing orders from suppliers Alstom, Stadler, and CAF.
In a recent letter addressed to Renfe's president, Álvaro Fernández Heredia, Carlos de Palacio acknowledged the company's financial vulnerability due to the impact of the Avril trains project, which has hindered both debt refinancing and the entry of Basque investors led by Jainaga.
As a result, Talgo recorded losses of 108 million euros in the previous fiscal year, with the current 2025 financial year commencing with reduced production rates and additional losses of 7.1 million euros, compared to a profit of 10.4 million euros for the same period in 2023.
Talgo's financial statements submitted to the Spanish Securities Market Commission (CNMV) up until the end of March contained two significant admissions: the company is renegotiating a contract with DB for 79 long-distance trains and has lowered its revenue expectations for the year (originally forecasted over 600 million euros in revenue with an EBITDA margin of 11%).
The issue of production capacity continues to manifest in Talgo's facilities in Rivabellosa and Las Matas, despite a backlog exceeding 4 billion euros in contracts and a recent multimillion-euro contract for 65 trains for Flix worth 2.4 billion euros.
Translation:
Translated by AI
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