|Alberto Viarengo, head of corporate DCM for southern Europe|
Debt novices feel the pinchHigher financing costs might seem hard on those multinationals for which Spain represents only a modest proportion of sales, but many companies face a much more perilous funding situation. The vast majority of Spanish firms are infrequent issuers and brittle international confidence in its economy is becoming an increasing barrier for companies hoping to access the capital markets. A downgrade would likely swell the number of investors moving to less volatile, geographically diversified stocks and further starve bond-market hopefuls of funding. So how would these unrated and less diversified players many of them multi-billion euro businesses bridge the funding gap created by constricted domestic bank lending and the small pool of retail or domestic institutional fixed income investors? The only solution is to embrace a new approach to capital markets: set new standards in corporate governance and disclosure and dedicate managements time to marketing the companys story to international and high yield bond investors. Companies in Spain adjusting to life at speculative grade would also have to alter their tactics on the size and timing of any issue. Spains window market was closed for long spells in 2012, and speculative grade companies would be even more restrained. With perhaps as few as one or two windows a year, the message would be go as quickly and as big as you can. And with more competition for the smaller pool of funds in the high yield market, companies would need to examine pricing too. The prize for those who can access capital markets is a significant strategic edge over competitors. With such a strong motivation to issue and greater reliance on the bond market, Spanish corporates this year could easily issue more than the EUR18 billion its private sector is expected to have sold in 2012.
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