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UPDATE 1-Syndicated bond market currently closed to FROB - sources
May 30, 2012 / 1:52 PM / 5 years ago

UPDATE 1-Syndicated bond market currently closed to FROB - sources

(Updates to add background, quotes, FROB issuance history)

LONDON, May 30 (IFR) - Senior debt bankers said on Wednesday that the syndicated bond market is currently closed for Spanish agencies, putting a dent in Spanish economy minister Luis De Guindos’ plans to recapitalise Bankia via the Fund for Orderly Bank Restructuring (FROB).

“It is not realistic to think that Spanish agencies can come to the market for syndicated transactions...It wouldn’t make any sense [for FROB] to try and tap the market at the moment, not only because of the price but because investors are too nervous to consider more Spanish risk,” one senior origination banker based in Madrid said.

State-backed FROB was set up in 2009 to manage the restructuring of Spanish credit institutions and enhance their equity. Bankia last received FROB assistance in 2010 to the tune of EUR4.7bn.

FROB currently has over EUR4bn capacity available to recapitalise Spanish banks but this does not come close to Bankia’s request made on Friday for EUR19bn.

Bankia’s woes caused by sour real estate loans have heaped further pressure on the Spanish bond market where 10-year yields are at 6.6%, fast approaching borrowing levels deemed unsustainable in the long term.

Bankers think that FROB’s only option to access the market in its current condition would be to place its debt privately with Spanish banks, or even to place it with Bankia to be used as collateral to get cash from the European Central Bank.

Other DCM officials questioned the level of funding available via private placements.

One senior London-based DCM banker, noting the influence of the government on Spain’s banks, called it more a question of politics than finance.


Before Guindos’ announcement, government sources told Reuters that the plan for Bankia’s recapitalisation was to inject government bonds into Bankia or the holding company BFA, which could be used as collateral for funding from the ECB. On Wednesday, his ministry said Spain had not consulted the European Central Bank on its rescue plans for Bankia, maintaining it would fund through FROB.

The ECB confirmed on Wednesday that Spain had not consulted on the recapitalisation initiative, while refuting media reports that it had rejected Madrid’s plan.

DCM officials are critical of Guindos’ strategy, with one banker saying that the amount required for Bankia is “so big that the government or the treasury should be taking care of it.”

FROB’s February 2014 deal is quoted at a mid-yield of 5.25%, which is 50bps wider than the January 2014 Spanish government bond, according to Tradeweb.

One London-based official said that the government clearly did not consult debt bankers before it announced its plans. (Reporting By John Geddie; editing by Alex Chambers and Julian Baker)

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