Catalonia Meets U.S. Bond Investors Ahead of Potential Issue

  • Regional government is pushing for independence referendum
  • Bond investors cautious on Catalonia debt on secession risk

Catalan officials led by region’s vice president Oriol Junqueras are planning to visit U.S.-based bond investors as they start exploring a possible return to the bond markets for a region that is pushing for independence from Spain.

Representatives from Catalonia plan to meet asset managers and investment bankers during a trip to New York in early May, said Pere Aragones, the region’s economic secretary, in an interview. Catalan officials already visited investors in London earlier this year, he said.

The Catalan government led by Carles Puigdemont is pushing to hold a referendum on independence as soon as this year as part of a drive to secede by Spain’s biggest regional economy that’s fiercely opposed by Prime Minister Mariano Rajoy. Catalonia’s debt maturing in 2020 currently yields about 2.25 percent compared with -0.13 percent for similar Spanish debt in a sign of the misgivings investors have about the finances of the region against the backdrop of its push for independence.

“We are getting ready to issue debt again,” said Aragones. “In coming months, and especially in coming years, the Catalan government will be present in the public debt market.”

Risk Premiums

Catalonia hasn’t sold bonds since 2012 when risk premiums for debt from European peripheral countries surged on concern that a financial crash could force the euro area to break up. The crisis coincided with a Spanish real estate crash that forced Rajoy to request an European Union bailout for its banking industry.

The region may wish to tap the bond markets at some point to finance an early repayment of its most expensive existing debt, said Aragones. Catalonia wants to explore its options for returning to the bond market irrespective of the outcome of the independence campaign, said Aragones.

Catalonia may ask the central government for permission to issue debt in the coming months, he said. Catalonia won’t in any case issue bonds before it has straightened out its differences with the government over its plans for the referendum, said Aragones.

Even so, it looks unlikely that Catalonia could sell bonds any time soon because Spain imposes a cap on yields for debt sold by a public administrations as part of tools to keep debt ratios under control. Also, Catalonia is the largest user of a regional bailout program made available by the central government and so is subject to stricter oversight from the Spanish Budget Ministry.

“I don’t think I would be interested in a Catalan bond until all dust around the political situation gets settled,” said Serafi Rodriguez, a fixed income trader at Morabanc, which manages 6 billion euros of assets. “Currently it’s a risky bet.”

Catalonia is seeking to rebuild bridges with bond investors as the Spanish government acts to improve the way it farms out funds to regions in a step that could improve the region’s creditworthiness. Rajoy now has more scope to act because economic growth is boosting tax collection to levels not seen in a decade.

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