Bankia Lures Foreigners With $1.4 Billion First Debt Sale

Bankia Headquarters
A tourist takes a photograph of one of the two KIO Towers, headquarters of Bankia SA, in Madrid. Photographer: Angel Navarrete/Bloomberg

Bankia SA, the Spanish bank whose losses forced the government to seek a European bailout, sold twice as much debt as planned in its first issue of senior bonds amid a surge in demand from foreign investors.

The bank doesn’t need to return to markets this year to cover redemptions, Chief Financial Officer Leopoldo Alvear said in a telephone interview yesterday after the lender sold 1 billion euros ($1.4 billion) of unsecured debt.

Still, after demand amounted to 3.5 billion euros, of which 85 percent came from foreign and mostly from long-term investors, it may return to the market if conditions allow.

“If we see there are opportunities in the market and the market continues to perform well for peripheral issuers, particularly Spanish banks and Bankia, we will make the most of them,” he said.

Formed from a merger of seven former savings banks, the Valencia-based lender became a symbol of Spain’s banking crisis when its nationalization threatened to overwhelm government finances in 2012, pushing the country into a European banking bailout. Shareholders were all but wiped out and junior debt holders, many of whom were clients, also sustained losses as a condition of the European aid.

A Bankia share sale to the public in 2011 that was encouraged by the government relied on domestic investors and the lenders’ clients. The bank was nationalized a year later and the government put former Banco Bilbao Vizcaya Argentaria SA Chief Operating Office Jose Ignacio Goirigolzarri in charge.

Price Surge

Less than two years on, amid a surge in Spanish sovereign debt prices and the nation’s stocks, Bankia sold senior debt for the first time. The lender, which has transferred 22.3 billion euros of soured property assets to Spain’s bad bank while selling assets and cutting jobs, sold the five-year unsecured bonds at 235 basis points over mid-swaps. About 12 percent of the demand came from hedge funds, with the rest from fund managers, insurance companies and banks, Alvear said.

As Spain crawls out of a five-year economic slump, credit continues to shrink. Alvear said demand for loans would pick up in the second half of the year.

“We expect demand for credit to be more or less stable in the first half compared with the end of last year and then we’ll see an increase in the second half,” he said.

Spanish two-and five-year sovereign bond yields fell to record lows yesterday as investors bet on recovery from two recessions and a financial crisis. As investors including billionaire George Soros and Bill Gates buy Spanish stocks, the main share index has risen 23 percent in the past six months, with banking stocks some of the biggest gainers. Shares in Bankia have risen 45 percent since June, while Banco Popular Espanol SA is up 62 percent.

Asked if the government would make the most of buoyant share prices to sell Bankia, Alvear said it was up to the state bailout fund FROB to decide.

“We haven’t had any formal conversations with the FROB about that,” he said.

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