The financing party registered between 2020 and mid-2022 has come to an abrupt end for both households and companies. The Ibex 35 companies face 2022 with a scenario of increasingly higher interest rates that is triggering the cost of bank loans since last summer but is also making the cost of bond issues more expensive.
The refinancing for 2023 and 2024 will multiply its cost after a stage in which companies have been financed at the lowest prices in history thanks to 0% rates and the stimulus policy of the European Central Bank (ECB). At the close of the current 2022 results season, in the absence of Inditex’s accounts, the 28 non-financial companies on the Ibex 35 have raised their financial debt by 10%, up to 183,000 million euros, according to data compiled by ‘La Information’.
Financial sources explain to this newspaper that the market outlook is completely different now and financing restrictions begin frequently. Grifols is one of the Ibex 35 companies that is being pressured the most by its financial debt, after it has pressured 57% during 2022, up to 9,193 million. Solaria (+51%, up to 842 million) and Cellnex (+41%, up to 16.9 billion) follow in the ranking, according to the 2022 earnings reports.
By volume of debt, the electric company Iberdrola leads the list with 43,749 million euros, 11% more, while Telefónica incorporates 35,332 million taking into account leases and coverage instruments. Cellnex, Naturgy, Endesa and IAG exceed 10,000 million, while Grifols, Sacyr, Aena, Ferrovial and Acciona maintain more than 5,000 million.
Most of them have opted in recent years to protect themselves against possible rises in interest rates with fixed rate formulas. “The bond market has suffered strong volatility in 2022. Financing costs have increased significantly due to successive rate hikes and lower market liquidity,” the French bank Société Générale warned in a presentation last month.
“The biggest milestone for the Spanish market in this context is having maintained market accessibility, demonstrating that investors generally feel comfortable with Spanish credit. The increase in costs in Spain has been in line with other markets. Activity of Spanish companies was one of the lowest registered in recent years due to excess liquidity accumulated in previous years,” according to the report.
In 2022, 50% of Spanish debt issues originated from Public Administrations, 39% from financial institutions and only 11% from companies. The total volume of 2022 was 69,000 million euros, 17% less than in 2022, when the figure reached 83,000 million. The figure falls for the second consecutive year and is 35% lower than the 107,000 million recorded in 2020.
The warning made by Ferrovial in the project to move its headquarters to the Netherlands focuses precisely on the financing tensions that they foresee for the debt in a context of high rates and contraction of the bond balance of the centrals. Over the last two years, the ECB and Fed have cornered debt purchases in the market, flattening the interest paid by issuers to investors and, therefore, their costs.
The market situation has turned 180 degrees and the debt curves are rising to levels not seen since 2007, that is, since before the subprime crisis. Ferrovial’s thesis is that its financing capacity will be protected under the protection of the Dutch passport and access from Euronext to both the largest European and Wall Street investors. The company cites risk premium stability as its key reason.
Hybrid Debt Stress
Ferrovial’s merger project with FISE to be listed in the Netherlands has placed this company in the spotlight of the Government of Pedro Sánchez, but also of investors. The infrastructure manager has announced that he will recommend a series of €500m perpetual hybrid bonds as part of the process. In addition, the company faces the maturity in September of ‘senior’ bonds for 500 million more.
Caixabank another of the members of the Ibex 35 similar and also beyond the cost of the other three series of CoCos, some regulatory capital instruments that the ECB requires of banks to reinforce their solvency. In 2017, 1,000 million were issued at 6.7, in 2018 another 1,250 million at 5.25% and in 2020 also around that last figure. Banco Sabadell went on the market last January for 500 million in CoCos at 9.2%, 400 basis points above the one it issued in 2021.