The Catalan Government issues 2,700 million euros in retail bonds to generate cash

In order to attain liquidity and taking into account the difficulties getting money from the international markets, the Catalan Government is selling 2.7 billion euros worth of treasury bonds. These will be bought by citizens at bank branches. One-year bonds have a 4.25% interest rate while for two-year bonds it is 4.75%. At the end of the first day of sales, 29% of the bonds were sold. The measure was already taken last October by the previous Government and the totality of the bonds were sold quickly.

CNA / Gaspar Pericay Coll

April 12, 2011 01:58 AM

Barcelona (ACN). - The Catalan Government needs cash as it is short on liquidity despite Catalonia being one of Europe’s economic engines. The financial markets are being tough on the loans to the Spanish Autonomous Communities. In order to deal with that the Catalan Government decided to issue retail bonds to finance its debt. It will issue 2,700 million euros in one-year and two-year retail bonds that may be bought by private citizens through bank branches. Nine banks and savings banks are participating in the operation. The Government will have to pay a commission to citizens and another to the banks selling the bonds. For the financial entities, the commission ranges from between 0.75% and 2.5% for one-year bonds and between 1% and 3.5% for two-year bonds. For citizens one-year bonds have an interest rate of 4.25% while two-year bonds have an interest rate of 4.75%. Therefore, for the Catalan Government, depending on the bank making the operation, one-year bonds have an interest rate between 5% and 6.75%, and two-year bonds between 5.75% and 8.25%.  It will be the second time in 6 months that the Catalan Government has used this means of financing itself. 2,500 million euros were sold last autumn with great success, when demand surpassed the amount offered by a wide margin. This time around, citizens will be able to buy a minimum amount of 1,000 euros and a maximum amount of 2 million euros. The Catalan Government said that during the first number of hours bonds were on sale, the demand was high and sales were strong. 29% of the bonds were already sold at the end of the first day.

Once again, the Catalan Government turns to its citizens to get cash. As many governments do, the Catalan Executive is issuing retail bonds that can be bought by private citizens from today. The operation will be over once all the bonds are sold. The previous Left-Wing Government initially put 1.89 billion euros in one-year bonds on the market last October, a quantity that was raised a few days after to 2.5 billion euros due to the great success this operation had among consumers. Now, the Catalan Government, which is run by the Centre-Right Catalan Nationalist Coalition Convergència i Unió (CiU), has released 2.7 billion euros in retail bonds onto the market. Only the clients of the nine collaborating banks and savings banks will be able to purchase the bonds. The collaborating financial entities are coordinated by Banc Sabadell, which is also ensuring the operation together with ‘la Caixa’, CatalunyaCaixa, Unnim and Barclays. In addition, Ahorro Corporación Financiera, Caixa d'Enginyers, GVC Gaesco i Deutsche Bank are participating. The bonds will be offered on demand and delivered to clients five days after the end of the purchase process, which will be over once the 2.7 billion euros are sold. The Government foresees this operation to last a few days. In fact, the first few hours of sales have been positive, according to government sources. 29% of the bonds have already been sold and demand is strong. The Executive has not ruled out issuing more bonds in the coming months.

The retail bonds are being offered in one-year bonds and two-year bonds. The total amount of two-year bonds is valued at 1.06 billion euros, as the Spanish Government put a limit on long-term debt issuing (and two-year bonds are considered long-term). The Spanish Government authorised the Catalan Government to issue 1,866 million euros of long-term debt. Up until now, the Catalan Executive has asked for a 400 million euro loan to Banco Santander, which will be paid back in four years and with a 5.7% interest rate. In addition, institutional investors bought 400 million euros of Catalan debt on the international and Spanish financial markets with an interest rate of 5.375%.