Sovereign wealth funds from Gulf states are laying the groundwork for acquisitions of "significant minority stakes" in Spain's troubled savings banks.
Initial talks have begun with state investment firms in Dubai, Abu Dhabi, Kuwait and Qatar to take equity stakes in the Spanish cajas de ahorros, or savings banks, according to an industry trade body that concluded a tour of Gulf states yesterday. "We're confident that we're going to see finalised investments in specific opportunities," said Jorge Gil, the managing director of Ceca, the Spanish Confederation of Savings Banks. He declined to offer further details, citing client confidentiality.
He said the current recapitalisation process would result in "cajas that are stronger, significantly bigger, much better capitalised … and which are welcoming to private investors, with increased levels of corporate governance".
The UAE Government and that of Qatar recently committed €450 million (Dh2.3 billion) to assist in the recapitalisation of the cajas, considered the weakest link in the Spanish banking sector because of bad debts run up during the country's housing bubble.
At a press conference in Madrid, Ahmad al Sayed, Qatar Holding's chief executive, told reporters the government-owned investment fund was considering investment in various cajas.
But local investors said the case for a strategic investment in the savings banks was less clear cut than other high-profile acquisitions, placing the onus on the cajas to come up with investments offering higher potential returns."There's appetite for support of Spanish assets, but [so far] it's been limited to a government level," said Mohammed Ali Yasin, the chief investment officer for CAPM Investment.
"Some sort of convertible debt would be preferable to equity, because it'll be yielding well and will be having some kind of cash-flow returns.".
One investor at a Gulf-based asset management firm, who asked not to be identified, said: "I'd struggle to find a strategic rationale or imperative." The financial rewards would have to be sufficient, he said.
"It's potentially a play on the eventual turnout of the Spanish economy, and it could be extremely lucrative, but it depends on how they structure the deal."
But the outlook for the Spanish economy has been clouded recently, with Moody's Investors Service recently downgrading the credit rating of Spain and its bank recapitalisation fund to "Aa2" with a "negative" outlook.
"Spain's vulnerability to market disruption remains elevated given the high funding requirements, not only for the sovereign but also for the regional governments and the banks," the ratings agency said in a report.
Moody's expects the Spanish cajas have a shortfall of €50bn to fully recapitalise, well in excess of the €20bn said to be necessary by Spain's central bank.
"Moody's believes that, in a more stressed scenario, recapitalisation needs could increase to approximately €110bn to €120bn," the report added.
Arturo de Frias, the head of banking research at Evolution Securities in London, said there was little cause for alarm around the sector.
"I'm very relaxed, personally. I think the recapitalisation will be successful."
A shortfall of more than €100bn was unlikely and would probably be closer to €50bn, he said. "[€100bn is] a scenario that's so stressed it becomes unrealistic," he added.