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UPDATE 3-Spain readies measures to aid hospitality sector, mulls longer loan scheme

(Adds latest tally, quote)

MADRID, Nov 12 (Reuters) - The Spanish government is considering extending its scheme of state-backed credit lines beyond December while also preparing measures to support the battered hospitality sector during the coronavirus pandemic, sources with knowledge of the matter said.

“Everything is under discussion right now, the increase of the grace period, the extension of those credits and of the entire scheme beyond December, but nothing has been closed yet,” one source said.

Hotels, bars and restaurants have been particularly badly hit as the pandemic stifled tourism in one of the world’s most visited countries, stoking a record recession.

Hundreds rallied in Seville, the capital of Spain’s most populous region of Andalusia, demanding direct state aid to “save the hospitality industry” as new restrictions kicked in, ordering bars to close at 6 p.m.

Officials in Catalonia said restaurants, bars and shopping malls in the region will remain closed for at least another 10 days, but they planned a gradual return to open-air activities on the terraces from Nov. 23.

A government source said measures to extend loan grace periods - which allow borrowers to delay payment without being charged late fees, being found in default or having their loans cancelled - would likely be approved by the cabinet as soon as on Tuesday and would initially target the hospitality sector.

The economy ministry declined to comment.

The existing state-guaranteed funding scheme of 140 billion euros ($165 billion) is due to expire in December, with the grace period on a significant volume of loans ending by April, and many small businesses fear they will not be able to cope with their payments.

ECB economist Paloma Lopez Garcia wrote in an article this week that “our analysis shows that Spain is the most affected country” in the euro zone, with about a quarter of all firms with employees at risk of becoming illiquid.

Despite having the second highest tally of cases in Western Europe at nearly 1.44 million, up by 19,511 from Wednesday, the infection rate has stabilised overall in Spain lately. The death toll rose by 356 to 40,461.

“The trend is favourable, but we have a very high number of new cases,” said health emergency coordinator Fernando Simon, expecting more pressure on hospitals “at least for a few more days”. (Reporting by Jesús Aguado, and Belén Carreño in Madrid and Marcelo del Pozo in Seville; Editing by Andrei Khalip and Angus MacSwan)