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Dealtalk: Spain hurries to cash in winning lottery ticket
August 2, 2011 / 1:00 PM / 6 years ago

Dealtalk: Spain hurries to cash in winning lottery ticket

MADRID/LONDON (Reuters) - Early elections in Spain will increase the pressure on the government to get its planned mega-listing of the state lottery done before the country goes to the polls in November, even if markets remain tough after the European summer break.

Time is tight. Loterias y Apuestas del Estado, expected to raise at least 7 billion euros ($10 billion) and rival Glencore as the biggest listing of the year, is targeting a market debut around October 20, sources close to the deal said.

Last week Prime Minister Jose Luis Rodriguez Zapatero, under pressure from both within his ruling Socialist party and the conservative main opposition party PP, said elections would be brought forward four months to November 20.

Another source close to the deal said Loterias would be getting ready to move as fast as possible after the summer, in part due to the pipeline of other large deals, including a potential $7 billion float by Germany’s Evonik.

“(The election) is yet another reason to move quickly,” the source said. “If you wait for the election and then a new regime comes in who then decide they don’t want to do it that could put it all on the backburner ... You just want to get things done.”

When savings bank Bankia (BKIA.MC) floated last month a source said it could consider postponing the listing if the premium that investors charged to hold Spanish 10-year debt over German hit 350 basis points.

That spread has now widened to 389 basis points.

“Any degree of political paralysis between now and the election isn’t helpful given that Spain is seen as exposed (to concern over eurozone peripheral sovereign risk),” said David Owen, economist at Jefferies.

SENDING A MESSAGE

The European market for new listings has had a tough year, with more than 20 deals pulled. Most of those companies which did manage to debut are now trading below their offer price.

Spain’s Telefonica (TEF.MC) dropped plans to list its Atento unit in June while Bankia and fellow caja Banca Civica BCIV.MC were forced to offer their shares at big discounts to raise a combined 3.7 billion euros.

Nicolas Lopez, head of macroeconomic and equities research at MG Valores brokerage, said he expected the Loterias offering to go ahead even if the markets were not in great shape.

“Spain needs to do the deal to get the revenues to reduce its debt,” he said.

Over the last year the government has implemented a series of structural reforms aimed at reducing the countrycountry’ss public deficit, including raising the retirement age, cutting public sector pay and making it less expensive to lay off workers.

Their ambitious privatization program, which includes the sale of a 30 percent stake in Loterias, is due to be completed by the end of the year and is hoped will convince markets the country’s public finances are under control.

“(Spain‘s)risk premium is very high and measures need to be taken to calm markets. The privatization of Spains lottery is about sending a message on cutting the deficit,” said Enrique Quemada, head of boutique corporate finance firm OnetoOne.

“Although these questions are not a priority for a government with elections on its mind, they could become priorities if Spain needed a bailout because the electoral debacle for the Socialists would be incredible.”

Loterias, whose small branded stores on street corners are as much a part of Spanish town life as the newspaper kiosk or neighborhood cafe, made a profit of 3 billion euros in 2009, up 3.5 percent on the previous year despite the economic downturn and is seen as the jewel in the crown of the privatizations.

Offering high dividend yields, it is expected to attract good demand from retail buyers who have been earmarked around 60 percent of the listing -- set to be Spain’s largest ever.

“Generally when you call an election everything goes on hold. But Spain needs the money so it is a trade off,” said one source close to the deal. “It is a unique asset so that should help.” ($1 = 0.704 Euros)

Editing by David Cowell

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