Galicia maintained the strong showing from Spanish sub-sovereigns in 2023 with its new long six-year sustainable bond.
“Bonos are cheap to swaps,” said a lead on the Galicia deal. “These names are cheap to Bonos. The stars are aligning.”
All the deals from Spanish sub-sovereigns this year have priced in the mid-20bp range, a high for recent years. The last time those names consistently paid higher spreads to the sovereign was during 2016 through to the first half of 2017, IFR data shows. Those levels are tightening back down into the teens, however, the lead said, pointing to secondary trading of 2023’s Spanish sub-sovereign supply.
“It’s taking time for these names that are more peripheral to Spain to catch up to where they were before,” the lead said. “But it’s one-way traffic getting back down into the teens.”
Galicia kept to that pattern of mid-20bp pricing set by its peers. It started marketing the no-grow €500m July 2029 deal at 30bp area above Spain’s curve, 2bp wide of where the identically-rated Madrid initially priced its well-received 10-year deal in mid-February.
Like that deal from Madrid and the Basque Government’s similarly good-looking long 10-year, Galicia was able to bring the deal in by mid-single digits. Galicia’s print priced at 25bp above, 5bp tighter than the initial guidance and putting it flat to fair value, according to the lead.
Abanca, Banco Sabadell, BBVA, CaixaBank, Credit Agricole and HSBC led the deal.
The sustainable aspect was marginal for Galicia’s execution, unlike for some euro ESG benchmarks this year, which have found significant traction with labelled buyers. “Would I say it’s a driver of these transactions like it was for the KfW transaction, and that sort of deal? No,” the lead said. “It didn’t detract from the transaction, that’s for sure. But it wasn’t the key driver.”
There is a mixed picture ahead for Spain’s autonomous communities. The budget outlook for the regions is expected to improve during this year after headwinds in 2022, a recent Scope Ratings report detailed. But the regions' spending pressures are expected to remain high: much of the Covid-era expenditures taken on by the regions are expected to become permanent features of their balance sheets.