Barcelona Battle With Separatists Raises Costs for Companies

  • Spanish business lobby warns of `grave' effects of secession
  • Independence campaign unnerves executives in Catalonia

Catalonia’s threat to break from Spain is taking its toll on some of Barcelona’s biggest companies by driving up their financing costs.

Bonds maturing in 2022 sold by conglomerate Criteria CaixaHolding SA yield 123 basis points more than comparable Spanish government securities, up from 17 basis points in June. Subordinated bonds sold by Banco Sabadell SA due in 2020 now yield 3.31 percent compared with less than 2.5 percent in May.

Catalan President Artur Mas is seeking a mandate to make Spain’s biggest regional economy a separate country at a regional election on Sept. 27. CaixaBank SA, which runs Spain’s largest banking network from Barcelona, signed a Sept. 18 statement by lenders saying they may pull business from an independent Catalonia and Spanish business lobby CEOE has warned of “grave consequences” for companies if the region secedes.

“As elections approach and polls keep giving pro-independent parties a majority, conservative investors prefer to sell some bonds amid uncertainty,” said Xavier Cebrian, a fund manager at Barcelona-based asset manager GCV Gaesco Gestion. “Dialogue among politicians will continue and that is what most investors are counting on.”

Warnings

Mas is pressing ahead with his challenge to the status quo while business leaders, regulators and politicians warn about the economic consequences of his plan. His situation carries echoes of both the opposition in the U.K. to Scottish independence in 2014 and the European establishment’s lectures to Greece’s Alexis Tsipras this year.

Scots in the end voted “no” in their referendum, while Tsipras won a second term as prime minister last weekend even after caving in to the euro area’s demands for more austerity measures.

Bank of Spain Governor Luis Maria Linde used a speech in Madrid Monday to warn that an independent Catalonia would be out of the euro region and its banks cut off from financing from the European Central Bank and drew parallels with the financial hardship in Argentina in 2001 and Greece this year.

Polls show support for independence continues to increase.

Catalonia is home to some of Spain’s biggest employers. CaixaBank has 340 billion euros ($381 billion) of assets and 5,345 branches, while Gas Natural SDG SA, part of the Caixa group, is a combined gas and power utility with business in 30 countries and 23 million customers.

Getting Nervous

CaixaBank’s 2023 subordinated debt yields 186 basis points more than comparable Spanish sovereign bonds, up from 132 basis points at the start of September. A spokesman for Caixa group declined to comment, as did his counterpart at Bank Sabadell.

Cebrian at Gaesco Gestion said yields would be higher on corporate debt if there was a real threat of a breakaway from the rest of Spain. So far, the risk is reflected more in the region’s government’s bonds. The yield on Catalan bonds due in February 2020 has jumped to more than 3.2 percent from about 1.7 percent in April.

Some investors are buying Catalan bonds after they fell. Mark Dowding, a partner at BlueBay Asset Management LLP in London, said this week he saw value in securities yielding more than 2.5 percentage points more than the Spanish sovereign and he is buying up the paper.

“We are going to have elections in less than a week,” said Javier Casal, director of public debt at Ahorro Corporacion in Madrid. “The uncertainty affects the debt issued by the Catalan government, but it also affects Catalan companies.”

Seeking Mandate

An opinion poll by El Mundo published on Sept. 21 showed Junts pel Si, the pro-secession platform that includes Mas’s Convergencia party, is set to win as many as 66 seats in the Catalan parliament and could also count on the support of a further nine seats from the anti-capitalist party CUP.

If the pro-independence parties win an absolute majority, a game of chicken with the government in Madrid will begin, said Antonio Barroso, an analyst at Teneo Intelligence. If they don’t, there will be a political mess with uncertainty about who will run the region, he said.

Mas has said winning a majority of seats in the elections would give him the mandate he needs to begin the process of secession, which the Spanish government has said is out of the question. While Scotland represents less than 10 percent of the British economy, Catalonia makes up twice that proportion of Spain.

Concerns about China’s growth and a glut of issuance have conspired to drive up yields on European corporate debt generally but political risks surrounding the secession question are an additional factor for companies based in the Catalonia, said Juan Esteban Valencia, a credit strategist at Societe Generale SA in Paris.

“There is bound to be some more corporate nervousness around the issue even if there is no real sign that Catalonia will actually secede or become independent,” said Valencia.

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