Spain's Catalonia pays high rate to borrow from investors

6th October 2011, Comments 0 comments

Spain's cash-strapped Catalonia region said Thursday it will issue its own bonds to rake in funds, forking out up to 7.0 percent or more in combined interest and commissions.

The northeastern region, an economic engine whose capital is Barcelona, said it would issue one- and two-year bonds in October worth 3.0 billion euros ($4.0 billion) aimed at ordinary investors.

The amount could be expanded to 4.0 billion euros, the regional government said in a statement.

Catalonia will pay a 4.75 percent annual return for the one-year bonds and 5.25 percent for the two-year bonds, it said.

In addition it will also pay annualised commissions of 2.0 to 2.2 percent depending on the result of the placement, which is being led by Caixa, Catalunya Caixa and Banco Sabadell banks.

The payout is far above the 2.58 percent on average that investors can find in Spain's banking market, according to Bank of Spain figures.

The bond placement will run from October 24 to November 14, with payment expected November 21, the same day that a bond issue from last year comes due for payment, it said.

Investors can buy any amount of bonds between 1,000 euros and 2.0 million euros, the region said.

Last week Catalonia suspended payments to care homes and mental clinics, describing it as a temporary cash-flow measure and promising to pay arrears by the end of the year.

Catalonia is on track to record a deficit double the regional deficit limit -- 1.3 percent of gross domestic product -- set by the national government this year.

It has set an austerity budget that aims to save a billion euros by shaving 10 percent off health spending.

Catalonia had already begun closing hospitals in July, but these efforts did not impress foreign investors and the ratings agency Fitch downgraded Catalonia's credit rating on September 14 to A-minus from A.

© 2011 AFP

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