Telefonica Joins Ferrovial Cutting Debt Cost on Spanish Recovery

Telefonica SA (TEF) and Ferrovial SA (FER) are joining a surge of Spanish companies seeking to benefit from renewed confidence in the nation’s economic recovery to cut borrowing costs.

Companies have sought to replace about 10 billion euros ($13.7 billion) of credit lines since Spain emerged from a two-year recession in October, according to data compiled by Bloomberg. That compares with about 4 billion euros of the debt raised in the first nine months of 2013.

Finance Minister Luis de Guindos upgraded Spain’s economic growth forecast for 2014 to about 1 percent on Jan. 28, less than a week after the nation’s banks exited a 41 billion-euro European bailout program. The economic recovery helped Spain’s borrowing costs fall to the lowest since 2006 this month while the cost of insuring Spanish government debt against losses approached a four-year low.

“Spanish companies are correlated to the sovereign risk, which has improved as investors see the country start to get to grips with the main issues it’s facing,” said Janin Campos, the London-based global head of loan syndications at Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s second-biggest bank. Given the events of the last three years, companies will “take the opportunity to maximize loan maturities and cut costs whenever they can.”

Lower Margins

Telefonica is in talks with lenders to replace a 3 billion-euro credit line with a facility paying a margin of 85 basis points more than benchmark rates, two people with knowledge of the deal said last week. Spain’s biggest phone company pays a 110 basis-point margin on its existing loan, according to data compiled by Bloomberg.

A spokesman for Madrid-based Telefonica, who asked not to be named citing company policy, declined to comment on the financing.

Ferrovial is seeking a 750 million-euro loan paying a margin lower than 100 basis points, two people with knowledge of the matter said Jan. 16. The infrastructure company paid interest of 300 basis points on a 541 million-euro deal signed in 2011, according to data compiled by Bloomberg. Company spokesman Joaquin Fernandez said Ferrovial does not comment on its financial operations.

Cheaper funding has allowed Spanish banks to have “lots of liquidity” while “companies are starting to prepare for investment again,” Jaime Becerril, a London-based analyst at JPMorgan Chase & Co., wrote in a Jan. 14 note.

Lending Increase

Total bank lending in Spain, which is battling the second-highest unemployment rate in the euro region, has dropped 21 percent since 2008, according to the Bank of Spain. Lending grew by 0.2 percent in November, the first month-on-month increase since March.

The average interest rate for company loans in Spain is about 4 percent compared with 2.1 percent in Germany and 2.3 percent in France, according to a Bloomberg Industries report based on ECB data.

Essen, Germany-based chemical manufacturer Evonik Industries AG (EVK), rated Baa2 by Moody’s Investors Service, obtained an 875 million-euro credit facility with a 40 basis-point margin in September, according to Bloomberg data. Gas Natural SDG SA (GAS), which has the same rating, pays 110 basis points on a 1.5 billion-euro credit line it signed one month later.

“Spain is a sweet spot for lenders in the high-grade corporate world,” said BBVA’s Campos. “There is a convergence of improving credit risk and fundamentals of the economy, yet loan pricing is still much better than you can get lending to other large European companies.”

To contact the reporter on this story: Stephen Morris in London at smorris39@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.