Expand / Investors fleeing the Catalan bonds and discount the possibility that the regional government made a default of 1,600 million in loans with four Spanish entities.
Investors are exhausted patience with Catalonia. Yesterday there was a surge of sales that bring back profitability Catalan bond highs. The interest on the issue that has the Generalitat, maturing in 2020, climbed 2.94% to 3.41% once, and the differential with the Spanish bond of the same maturity, which would be equivalent to the risk premium , it reached its highest level in nearly three years, to 318 basis points.
This market reaction occurs on the eve of the meeting that will keep the finance minister, Cristobal Montoro, with the Catalan economic vice president, Oriol Junqueras, to try to unclog the debt problem and ease liquidity tensions in the short term.
investors are starting to thus give a higher probability that Catalonia can not cope with debt, as have warned the rating agencies in recent days. The first warning threw Standard & amp; Poor’s (S & P), which placed last March 4th regional government rating under review for a possible downgrade. It is anticipated that in the coming days to announce its verdict, which could sink further note of the Government, currently at BB-, the degree of junk, even place it in what is known as selective default (selective default) . And Moody’s did the same six days ago with an aggressive message, since he doubted the ability of the autonomous community to meet its financial obligations in the short term.
In October, the region asked the Government Central authorization convert short-term portion of bank debt into long term debt. It is a loan with four banks amounting to 1,600 million euros that expires this year. As reported in Bloomberg yesterday, the central government had not yet given its approval to this restructuring.
According to official figures from the Bank of Spain, Catalonia owed and 72,283 million, 5% more than in the previous quarter. Over 60% of this debt is in the hands of the State, aid made available to the Government through the Fund mechanism Autonomic Liquidity (FLA).
market reaction principle, the reaction of the bonds in the secondary market would not be justified, since the repayment of these securities would be guaranteed also by the FLA. But as warned Moody’s in its statement of March 12, although there is “a strong track record of government support for the region through the FLA, the failure to get approval for this particular conversion evidence the uncertainty surrounding the program. ” That is why it is likely that there were investors who have preferred to sell, so it might happen in the future.
In all, the Generalitat of Catalonia has 30 issuances in the market worth 7,007 million with an average coupon of 4.64%. The securities mature on average on 22 December 2023.
This year, the Catalan government will expire three operations that, in principle and as has been happening since 2012, will be attended by the FLA. This is an issue amounting to 150 million Swiss francs (around 136 million euros to change yesterday), which expires on 24 this month, another 200 million, making it the July 13, and another 934.13 million, to be repaid on 15 November. In total, 1,270 million euros that should answer the liquidity
SPAIN. High voltage debt in Catalonia: the risk premium soars
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