Low rates help Spanish companies’ P&L

The Spanish Treasury has refinanced €1 trillion of accumulated public debt from a previous rate of 3.5% to a lower figure of 1.5%. The ECB’s monetary policy will keep rates low- close to zero- while inflation is falling below growth and price target increases of around 2%. Low rates are hampering any increase in lending, but will be a relief to indebted Spanish households and companies with a total debt portfolio of 200% of GDP. It should be noted that this figure has been decreasing for the past two years.

Having spent the last two fiscal years reducing their debt portfolio, companies are currently focusing on reducing that debt through refinancing their loans for longer-term debt at lower rates.

Easy access to wholesale bond markets is contributing to this strategy of reducing costs as a means of improving the general fiscal condition of many large Spanish firms. Telefónica refinanced €5 billion this month on conditions that will reduce their debt by half, and lengthen maturities until the end of the decade.