CRIF Ratings (CRIF) believes that the unexpected results of the UK referendum held in 23 June 2016 and the unsettled Spanish political agenda is likely to slow down the activities on the Spanish corporate debt capital markets in the following months. Similarly to what we see in the Italian debt markets, small and mid-caps’ access to capital markets will remain constrained by financial market turbulences and the protracted political uncertainty.
In 1H16 bond volumes issued on MARF (Mercado Alternativo de Renta Fija) totalled EUR292m, very much in line with the level reached in 1H15 (EUR269.5m). However, pure corporate issuances have been rather scarce with only EUR24m issued by Pikolin (EUR14m) and Saint Croix (EUR10m). Other bond issues included EUR169m by Caser, the insurance company, and EUR99m project bonds issued by Globasol (EUR45m) and by Autopista del Norte (EUR54m). As of end of June 2016, total outstanding debt issued in MARF is around EUR1bn.
Capital market activity of large corporates in Spain was also very scarce in 1Q16. Only from the second quarter of 2016 and as a result of the announced purchase programme from ECB a total of c EUR7bn was issued with Telefonica (EUR2.7bn), Abertis (EUR1.1bn) and Iberdrola (EUR1bn) issuing the largest amounts.
In CRIF’s view, the combination of political uncertainty after Sunday’s Spanish elections and the financial market turbulence caused by the unexpected outcome of the referendum on Brexit is likely to slow down the capital market activity in the coming months. This might become a concern for small and mid-caps should also banks’ appetite for corporate credit fade away.
“Investment-grade issuers with robust and predictable business profiles and little exposure to the UK and/or commodity-currency risks, will in fact benefit from European Central Bank’s (ECB) monetary policy. Starting on June 2016, this measure only contemplates the purchase of corporate debt with at least one investment grade rating in place” - says Borja Monforte, head of Iberia Operations in CRIF. On the other hand, small and mid-corporates (typically non-investment grade rated), will continue to largely fund their activities through financial institutions rather than through the capital markets. “Investors will probably wait and see how the Brexit negotiation and the political situation evolve in order to test deeper waters” – adds Monforte.
The banking sector of southern European countries, including Spain and Italy, remain vulnerable to market events with systemic implications like Brexit. A harsher selection of corporate credit risk to preserve banks’ profitability is likely to result in a better access to credit for companies active in sectors with strong fundamentals. Conversely, companies exposed to market volatility especially to foreign currencies or commodity prices are likely to see a worsening ability to access markets.
Contact
Borja Monforte, Director- Corporate Ratings
Head of Iberia Operations
E-mail:
b.monforte@crif.com
