Greek fears force Bankia to lean on Spanish investors

 

Fears of a Greek default have further darkened the prospects for the planned stock market debut of Spain's Bankia, but the savings bank is expected to plough on with its flotation by leaning on domestic support.

The ability of Bankia, Spain's largest savings bank or 'caja' by assets, to capture enough investor interest to carry out its planned July listing will be a measure of the success of Spain's banking system reform earlier this year.

Retail investors and Spanish institutions are expected to support the deal, as a failure to float would damage the perception of Spain in international markets as it battles record yields on its sovereign debt.

"Spanish institutions want it to be a success because a failure would carry a lot of implications for the country," said one Spanish fund manager who asked to remain anonymous. "It's the first caja to come to market and a reflection on the success of the restructuring of the sector."

Bankia, created from the merger of seven regional banks, wants to raise up to 4 billion euros to meet strict new solvency levels set by the Bank of Spain. It is likely to publish its prospectus on Wednesday.

Bankia may have to be priced at less than half book value in order to capture interest from institutions, bankers say.

One private equity investor said distressed debt funds with longer term capital may take a punt.

"If Greece does actually default, Spain may not be far behind, in which case it's going to take brave men and long-term capital to play in that market," Jon Moulton, chairman of private equity group Better Capital told Reuters on the sidelines of a conference in Monaco.

NATIONALISATION THREAT

The Spanish Socialist government forced the unlisted regional savings banks, which account for around half the banking system, to get private capital on board or face nationalisation earlier this year.

The move was part of a packet of reforms, including austerity cuts and labour reform, aimed at preventing a crisis of confidence in Spain's ability to cut its deficit and avoid a European Union bail-out like Greece or Portugal.

Greek Prime Minister George Papandreou's cabinet faces a confidence vote late on Tuesday, the first of three tests the Greek government must survive to avert the euro zone's first sovereign debt default.

Euro zone finance ministers' attempts to patch together a second aid package for Greece, with more official loans and a contribution by private investors of Greek government bonds has refocused the spotlight on Spain.

"There is a certain imperative from a Spanish perspective - this getting done successfully should be very positive for the Spanish sovereign," said one equity capital markets banker. "The question is how much demand comes domestically."

But one Spanish fund manager at a private bank said it was wishful thinking that Spanish institutions would come to Bankia's aid.

"If it's cheap, we will look at it but we also have an obligation to our clients. We don't invest for the sake of Spain," she said.

Bankia hopes to sell half its offering to institutional investors, the other half to retail investors through its network of more than 4,000 branches.

"They will be the easiest to sell to, they will be the most likely to buy into it," said one London-based analyst.