Hello, again.
At the entrance I did on October 23, 2010 , speaking of the investor triangle and the concept of risk analysis, gave as an example the bond issue which was then being out the Generalitat of Catalonia. Today, a few days later, I want to reflect upon the bond one year of 1,000 million euros, expandable to 1,500 million , which since December 2, 2010, began the Generalitat Valenciana.
The first fact to keep in mind is that the bond issue is addressed fully NO individuals and institutional investors. As was the case with the issuance of bonds Catalan, once again, the "big money", what Americans call the "smart money", do not go to this "fabulous" bond issue. In fact, the Generalitat Valenciana performed this bond issue, as happened to the Generalitat of Catalonia, because they get that money in the wholesale market, much cheaper but much more demanding to receive guarantees to provide the money.
If for positioning and securing the bond issue came mostly Catalan savings banks and Catalan, the latter controlled by the Generalitat Catalonia, the Generalitat Valenciana now is exactly the same, making them savings banks and mostly Valencia to place and ensure the success of the issue. Another nuance that should not go unnoticed.
The analysis of this transaction allows us to highlight another feature that was present also in the Catalan bond. The RETURN this operation offers the investor, is much less than the cost of this operation is for the issuer, in this case, the Generalitat Valenciana. If any particular investor to come to the issue will receive an APR of 4.75%, the actual cost to the Generalitat Valencia is 7.75%. This is because the issue underwriters charge a 1% insurance and an additional 2% for the placement of the operation.
The last auction of treasury bills (state) to 12 months offered a yield of 2.363%. Why must assume the Generalitat Valenciana cost three times higher, as did the Catalan Generalitat?. Why state that cost him a 2.363% to the General Valencia cost you 7.75%?.
The signing of these bonds is the illiquidity of money invested until settlement with payment of interest on 22 December 2011.
RISK Concerning the operation I want to comment that I find very important and I hope I'm wrong and no matter what I will comment.
The year 2011 will be a year of extremely hard on the finances of all government, and especially those of the Autonomous Communities. cash advances that were produced by the State in favor of the Autonomous Communities, pursuant to the financing system currently in force were based on revenue forecasts that have proven to be completely "inaccurate." If it is found that as income tax, for example, would raise $ 100, it really has raised 60, to give a figure. As advances are made to account based on these projections and the reality is that it has raised far less than estimated in its day, is that for the next 2011 all the Autonomous Communities as a whole, except for Community Madrid, have to repay the state about 25,000 million euros over perceived, based on forecasts that actually drastically reduced. The problem is greater if one takes into account that the regions have spent that money and not returnable.
Add to this that the misfortune is already quite complete in that fateful 2011, and Spain has the dubious honor of joining Ireland, Greece and Portugal who knows whether, as a country more involved by European Union, I wonder: what guarantees do we receiving the money we invested plus accrued interest, at the end of the expected poor 2011?. If Spain were involved, something that today is far less ruled out, will there be a rebate on all public debt, which will assume that bondholders?. Will it take investors with English public debt, state or regional, losing some of their money?. This risk seems very real and certainly to be taken into account and assess it very carefully when investing our savings worked in English public debt, either national or regional.
The Valencia currently has a debt in excess of 16,000 million euros. It is the second region with more debt , behind Catalonia has more than 30,000 million euros. In fact, the debt of the Generalitat Valenciana represents 16% of the GDP of the Autonomous Community, with the highest percentage if we compare this data with the equivalent of the rest of the regions.
If we add that the amount of this bond issue will go to pay suppliers, ie to finance current spending rather than productive expenditure , as might be the completion of some infrastructure, not just to see, nor saw the Catalans bonds, what are the arguments that may have a small investor to venture into the purchase of bonds of the Generalitat Valenciana.
Regards,
José Antonio
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