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Spain FROB Caja fund set for second bond issue

Wed 26th Jan 2011

Spain's savings bank fund (otherwise known as the Fund for Orderly Bank Restructuring, or more commonly still 'FROB') has named lead banks for its second bond issue, it was reported on yesterday, after the government released estimates of a shortfall of up to 20 billion euros in the system.

Earlier in the week the government announced how the regional savings banks, or 'Cajas' had until September to raise capital from private investors or they would become partially nationalised. All cajas must increasecore capital ratios to a minimum of 8 %.

Scepticism over the FROB plan increased the premium investors demand to hold Spanish debt over the German Bund yesterday, though yields fell sharply at a Spanish Treasury bill auction.

The FROB, which the economy ministry said would only be used again if the cajas cannot raise the necessary funds from the private sector, has already pumped 10.6 billion euros into the sector's restructuring.

The fund has only been to market once before, with an issue of 3 billion euros in 2010.

Investors are due to hold a conference call on the new deal later this morning.

Reuters reported how mandated banks on the new deal include Citi, HSBC, RBS, Santander and SG, and markets are expecting a three-year bond. "There is a lot of momentum in the market right now," an unnamed source commented. "This is quite likely to be this week's business."

Yesterday morning the Spanish Treasury witnessed an increased demand for its short dated T-bills, easily selling 2.2 billion euros at sharply lower yields than that demanded for the same bills last month.

Spanish businesses are also taking advantage of improved confidence towards euro zone peripheral economies as euro leaders hammer out details of reforms to the European Financial Stability Facility (EFSF) rescue fund.

Earlier in the week Iberdrola and Telefonica announced they were set to raise a combined 2 billion euros in the bond market, taking advantage of a window of opportunity which has opened up over the last few days.

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