Spain Grants Madrid, 3 Regions First 2013 Debt Issuance

Spain’s Cabinet today gave four regions including Madrid a green light to issue debt.

The central government has authorized Madrid, Galicia, Navarra and Aragon, none of which have tapped the nation’s regional rescue-fund known as FLA, to issue 4.4 billion euros ($5.9 billion), Deputy Prime Minister Soraya Saenz de Santamaria told reporters today in the Spanish capital. More than half the amount is for Madrid, the second-biggest regional contributor to the country’s economy.

Madrid aims to start issues next week after collecting more than 1.7 billion euros worth of offers. A low yield-environment is boosting demand for Spanish securities, from the central government to corporates and banks and has extended to the regions.

Nine of Spain’s 17 semi-autonomous regions, including three of the four largest, Catalonia, Andalusia and Valencia, rely on the FLA for funding this year. It was created in July to prevent any regional default and Spain’s Treasury has increased its net funding goal by 24 percent this year to include 23 billion euros for the backstop.

The four regions granted debt issuance rights today are among the most financially robust and are currently trading at a discount to the sovereign. Madrid, Galicia and Aragon have the same investment grade rating as Spain, while Navarra, which is one of two regions that collects taxes directly instead of receiving a transfer from the central government, is rated two levels higher.

Analistas Financieros Internacionales, a Madrid-based consultancy firm also known as AFI, estimates gross debt sales from the regions of about 30 billion euros this year, excluding short-term debt.

The Budget Ministry has imposed a debt ceiling of 172 billion euros on the regions this year, or 16 percent of gross domestic product, compared with outstanding debt of 167 billion euros in the third quarter, including 102 billion euros of bank loans and the remainder mostly in bonds, according to the Bank of Spain.

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