The CNMV and the government have been trying for years to get the big companies and Spanish banks to issue debt in Spain. But with hardly any success. Despite some reforms having been made, Spanish companies continue to head for Europe and even farther afield to ask investors for money.
Telefonica frequently issues debt in the US in different currencies from the euro. For its euro issues it goes to London. In the case of Santander, it uses Dublin as its operational base for debt issues, somewhere also favoured by El Corte Inglés. Meanwhile firms like Gas Natural, Iberdrola, NH and Madrileña Red de Gas have used Luxembourg this year to issue debt.
It would be good if these firms issued debt in our country. Firstly, because it would generate a spectacular amount of business amongst banks, brokers, lawyers firms etc. And, secondly, because it doesn’t make any sense for Spain to be fighting for Madrid to become a financial centre capable of welcoming companies fleeing from Brexit, when its own firms prefer to issue debt in London, Dublin, Luxembourg or Frankfurt.
There’s something here which doesn’t add up. It should also be pointed out that neither the government nor the regulator were excessively concerned about all this before the huge onslaught of debt issues we’ve seen in the last few years. And these have in fact accelerated recently. Pressured by a possible hike in rates – which will end up materialising in two or three years – and in the process of redesigning their debt mix and cutting the cost of servicing it, Spanish companies have launched a veritable whirpool of debt. Which, I repeat, benefits rival financial centres, not Madrid.
Before adopting any initiatives to encourage our companies to issue debt on their home ground, the CNMV and the government listened to market operators and company executives to try to establish what was making them go abroad. They found out that in Spain the fees and commissions for these transactions are much higher, and that the CNMV took a lot longer to study and authorise the debt issues. In addition, taxes (both for firms and investors) are much higher here and the Spanish debt market is not as illiquid as others in Europe.
After being put in the picture, the CNMV and the government made a plea to Spanish debt issuers to take measures. This happened between 2013 and 2014. For their part, they did what they could: they cut fees and made the process easier. They also allowed the prospectuses to be in English or in accordance with foreign legislation.
Despite all this, there was no really significant result. Companies continued as if there was no debt market in Spain. In the first quarter of this year, the volume of gross fixed income issues registered with the CNMV totalled 17.429 billion euros. Bond issues rose to 12.613 billion euros, 4.290 billion of which were in Luxembourg, 2.099 billion in the UK and 1.758 billion in Ireland. Only four companies registered their bond issues with the AIAF: Criteria CaixaHolding, Adif, Canal de Isabel II and Sacyr, which issued a total of 2.524 billion euros, according to Dealogic. Last year, the numbers were similar: Spanish companies (including banks) sold more than 43 billion euros in 2014 and only around 6 billion euros were channelled through Spain.
The urge to go abroad is so strong that even Adif does it, from Dublin. And Spain’s Official Credit Institute (ICO) itself prefers Luxembourg to Spain for its debt issuances. The situation became so ‘scandalous’ that the government had no other option than to rap the public organisation over the knuckles and insist that it issued debt in Spain. But it seems that this has fallen on deaf ears and it continues to issue in Luxembourg. Our authorities’ frustration is even more understandable when, according to some operators, the fees are currently even lower than in other countries. And the operational side is just as agile. So what’s going on? It’s the fact that issuing debt in specialised financial centres still has a lot of advantages.
What drives an Ibex company to seek a listing in New York or London? Well the investment banks are there and, above all, the big institutional investors. Which obliges them to organise those well-known and expensive road shows. The same happens with debt issues. Investors can indeed come over here. But we mustn’t forget that the investment banks – Goldman Sachs, JP Morgan – have their operational structure in these centres, so it’s much easier for them to design, develop and deploy transactions there than in Spain (our banks are not protagonists in debt matters).
Investors also have their offices in these financial centres. They want to hear the details, they want to listen to those companies issuing debt. The most logical thing is for Mohammed to go to the mountain, and not the other way round. Another fact. These markets, massively bigger than the Spanish one, provide a lot more liquidity for issuances, something which is favourably reflected in prices and in the volume of transactions. And these are criteria which really need to be taken into account
All this explains why, for example, neither the governments nor the big companies in Latin America – many of them public like Pemex or Codelco – issue debt in their own countries but in New York or London. We have to understand that debt issues have become a super-specialised business. With complicated clusters all around. It’s difficult, or even impossible, for those who have recently arrived on the scene.