TEXT-Fitch: Catalonia will need more central government liquidity support

Tue Nov 27, 2012 4:43am EST

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(The following statement was released by the rating agency)

Nov 27 - Catalonia may still need to find funds to cover its domestic bank obligations even though the Spanish authorities have stated that they will extend the Regional Liquidity Fund (FLA) into 2013, Fitch Rating says. This need will arise if the FLA is implemented using the same criteria as for the 2012 fund, and exclude domestic bank loans from the FLA.

The difficulties of raising this money in the capital markets, and the reluctance among domestic banks to lend to regional governments means Catalonia is highly likely to continue to look to central government support to fund maturing obligations. Catalonia has a total of EUR13.6bn short- and long-term debt coming due next year. Around EUR3.15bn is from domestic banks.

Catalonia's election, in which pro-independence parties won a majority, is unlikely to affect debt repayments because of the central government's commitment to liquidity support, which is factored into Catalonia's 'BBB-' rating. The regional government also pledged to make debt repayments a priority. However, the relationship between the central and regional government will become more tense and this could complicate and delay negotiations.

Catalonia was among the first regions to require the FLA and started receiving funds from the central government on 9 October. In total, the Catalan administration has requested EUR5.37bn from the FLA in 2012, EUR3.30bn for debt coming due and EUR2.07bn to cover its deficit.

The 2013 state budget is under debate and is expected to be approved at the end of the year. The FLA for 2013 is likely to be at least EUR23 billion.

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