Spanish Regions to Add $39 Billion to Funding Gap: AFI

Spanish regions will add at least 30 billion euros ($39 billion) to the nation’s 207 billion-euro funding needs next year as the nation extends its bailout of cash-strapped states, according to consulting company AFI.

The 30 billion-euro estimate is based on regions such as Madrid maintaining market access and not having to apply for aid from Spain’s most recent rescue fund for the regions, known as the FLA, said Cesar Cantalapiedra Lopez, an Analistas Financieros Internacionales partner in Madrid who specializes in public administrations.

“Remaining outside the FLA currently involves an additional premium” of about 250 basis points on top of the Treasury’s borrowing costs instead of 30 with the FLA, Cantalapiedra said in an interview. “If things become very complicated, the Treasury will have to centralize everything.”

As most large regions remain locked out of financial markets, Prime Minister Mariano Rajoy plans to extend the fourth one-off bailout mechanism he’s created this year into 2013. Rajoy, fighting to maintain market access for the Spanish Treasury, is still calculating the cost of doing so after his People’s Party proposed an initial 23 billion euros.

That is half the 17 regions’ global funding needs that will amount to 46 billion euros next year, including redemptions for bills, bonds and bank loans, Cantalapiedra said.

Madrid, Galicia and Castile-Leon are among the regions avoiding the FLA because “there is a political stigma attached to it,” he said. Still, their ability to attract foreign investors through private operations may disappear if markets deteriorate, he said. “If any one gets any help, if there is a bailout tomorrow, they’ll want one interlocutor, not 18, and that’ll be the Treasury.”

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