Spain Drugmakers Plan $7 Billion Unpaid-Bill Securitization

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Spain’s pharmaceutical lobby is negotiating with authorities on a plan to sell state-guaranteed securities backed by 5.4 billion euros ($7.1 billion) of unpaid bills, Farmaindustria Director General Humberto Arnes said.

The group, which represents companies including the Spanish units of Roche Holding AG and Novartis AG, is in talks with the regional governments that owe the debt and the central government, Arnes said in an interview in Madrid today. The aim is to bundle the unpaid bills into a vehicle that would issue securities guaranteed by the central government and channel the proceeds to the companies, he said.

“It would allow the payment of the debt to be deferred by several years and has a government guarantee which allows it to be sold in the market,” Arnes said. “The mechanism allows a delay until Spain is in a financial and economic situation that allows it to face the pharmaceutical bill.”

Spain’s regional governments are struggling to pay suppliers as the collapse of the real-estate boom has slashed their tax revenue while access to capital markets has narrowed. The regions, which control health and education, have racked up record amounts of debt during the crisis, and together owe more than twice what they did in 2007, Bank of Spain data shows.

Borrowing Costs

The proposal comes as Spain’s central government pays more than 5 percent to borrow for 10 years, amid growing expectations of a Greek default. Government-guaranteed bonds due in 2013 that are backed by Spanish power bills -- issued in a similar securitization program -- yield 85 basis points above securities issued by the Spanish Treasury.

Eric Althoff, a spokesman for Novartis, and Alexander Klauser, a spokesman for Roche, declined to comment immediately on the plan. Both companies are based in Basel, Switzerland.

Work on the proposal is “very advanced,” and contacts with regions and the government so far have been “positive,” Arnes said. The facility, which would allow regions to delay payments for around four to six years, would remain open to including future unpaid bills, he said.

Arnes said the industry isn’t even considering the possibility that the pharmaceutical debt won’t be repaid in full. The vehicle would take the debt off the books of the regions, with the aim that it wouldn’t restrict their ability to borrow more, he said.

“It’s realistic because, firstly, it doesn’t saturate the regions’ ability to take on debt,” he said.


The plan may have to be put in place by the next government as Spain holds elections on Nov. 20. Polls indicate the opposition People’s Party will win. The PP already governs in most of the regional administrations. Spokesmen for the Finance Ministry and Health Ministry declined to comment on the proposal.

Spain’s regional governments owe 5.4 billion euros for medicines supplied to hospitals and are paying bills an average of 430 days late, Arnes said. That debt, as of June 30, increased from 5.19 billion euros at the end of March, when the average delay was 410 days, according to the group’s statistics.

The pharmaceutical debt is equivalent to about 0.5 percent of Spanish gross domestic product. Regions also have combined outstanding debt of 133.2 billion euros, or 12.4 percent of GDP, according to data from the Bank of Spain, compared with 60 billion euros at the end of 2007. Moody’s Investors Service cited concerns about the regions’ budgets when it put Spain’s rating on review for a downgrade on July 29.

“The problem will not be solved by inertia,” Arnes said.

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