Supply and demand – Broseta

Spanish businesses are in serious need of investment, yet the country’s major banks remain reluctant to supply this demand, according to Julio Veloso, a Corporate Partner at Broseta Abogados. The main problem is that “new money” from financial institutions is scarce.

“The few new financing deals that are around are trying to get through a tough market and can take a long time to process,” he adds, “often resulting in being abandoned before they can reach financial close”.

Veloso says his firm is, instead, seeing a great deal of refinancings, with about 95 percent of those deals related to companies that have run into financial difficulty. “Banks are in a situation where they have leant to companies that are now distresses so they need to look at refinancing or risk writing off the money.”
These refinancings tend to involve improving terms, such as the interest rate or the length of the debt. But while the recycling of existing debt helps companies to recover, the bigger challenge, Veloso believes, is to attract new investments for the next generation of business-building. 
At present, the options are limited. As well as the banks not lending, the Spanish equity capital markets – such as initial public offerings – have also been very quiet since the recession. There are some signs that companies have been looking at issuing bonds, notably the banks to help with their liquidity, although activity for corporates remains stifled. The answer, he adds, may come from alternative sources.
“It may seem a bit tough now but I am confident that new investors will come into Spain and help reinstall confidence, as there are lots of alternative lenders, whether private or venture capitalists or distresses debt fund, that could be very positive for Spain.”