Ian Mount, Financial Times

Neinor Homes boss Juan Velayos had good reason to be nervous when he went on an investor roadshow before his homebuilding company’s IPO on the Spanish stock market in March.

The domestic economy was not the problem. International investors — mostly from the UK, the US, and France — understood its recovery. “We had a very strong macro environment,” says Mr Velayos, “with Spanish GDP growing faster than its peers, unemployment going down, and the affordability of mortgages in a good place because home prices had dropped [since the crash].”

But Spain still had some 480,000 unsold new homes sitting on the market, and sales had only recently begun to level out following a decade of declines. Worse, investors had lost mightily on Spanish homebuilders after the 2008 pop of the country’s housing bubble.

Mr Velayos was asking them to buy into the first IPO of a property developer in Spain in 10 years and, he says, the biggest listing for a European homebuilder ever.

Optimism about Spain’s recovery and the company won out, and Neinor’s IPO was more than four times oversubscribed. It was priced at €16.46 per share, giving Neinor a market capitalisation of €1.3bn; within four months, the share hit a peak of €20, before falling back closer to the offer price.

Spain’s stock market had a good start to 2017, with the blue-chip Ibex 35 index rising 19 per cent by early May. That motivated a batch of Spanish companies to go public, with some of the biggest initial public offerings in Europe in 2017 — including not only Neinor but also the April IPO of Gestamp, which valued the car parts maker at €3.2bn.

Indeed, companies on Spain’s public markets have raised €29bn so far in 2017, an increase of 53 per cent over last year, according to BME, the country’s stock market operator. Of that, 21 companies have raised €4.3bn in initial public offerings, three times as much as the same period in 2016, when the country was without a proper government for 10 months. The Spanish market has been the busiest in the eurozone by IPO value, according to the BME figures.

“It’s not that 2016 was that bad, but that this year has been especially good,” says Domingo García Coto, head of research at BME.

Spain’s economy provides ample evidence. GDP has been one of the fastest growing in the eurozone over the past few years, and rose by an annualised rate of 3.1 per cent in the three months to September; unemployment has fallen from 27 per cent in 2013 to 16 per cent.

Then came the conflict between Madrid and the regional government of Catalonia, which held an unsanctioned vote on independence on October 1. “After a 2016 marked by uncertainty, 2017 offered a clearer political landscape and a series of macroeconomic data that guaranteed the recovery of Spain,” says Victoria Torre, head of analysis at Self Bank in Madrid. “That’s how it was until the Catalan conflict began.”

Reservations in Catalonia’s tourism sector have dipped (see below), and more than 2,000 companies have moved their registered headquarters from the region to other parts of Spain.

The Ibex 35 index fell 11 per cent between its May high and its low point in early October. And Spain’s central bank predicted that prolonged political upheaval could cut as much as an accumulated 2.5 percentage points off Spain’s GDP over the next two years.

It is, for some market observers, another example of why stocks on the Spanish markets often trade at a discount to other exchanges.

“Spain has never stopped offering excuses for foreign investors to not pay attention to the fundamentals,” says José Ramón Iturriaga, fund manager at Abante.

“The most recent is Catalonia. A year before that we had a caretaker government. And the year before, the primary worry was Pablo Iglesias [leader of the far-left Podemos party].”

But there are grounds to believe that the damage to Spain’s markets will be limited. Víctor Peiro, head of research at boutique investment bank Beka Finance, notes that companies on the Ibex 35 only earn about a third of their pre-tax earnings in Spain.

The impact may also be lessened by the fact that the central government of Mariano Rajoy acted quickly to dissolve Catalonia’s government and call snap regional elections for December.

“The closeness of the December 21 elections offers the advantage that, for better or for worse, the uncertainty won’t last long,” says Ms Torre. “That removes the scenario of a long wait, which would have generated more distrust among international investors.”

For companies expected to test the IPO market in coming months, the recent experience of Aedas Homes may give them confidence — or pause.

The homebuilder successfully held its IPO in mid-October, just weeks after the Catalan vote, but its shares dropped at open; they remain below the offer price, at the time of writing.

“It shows the strength of the market and the confidence of investors that they were able to go at the moment of maximum uncertainty,” says Mr Velayos. “Investors love Spain, they love the macro [conditions], they love the business.”

Still, he says, with Catalonia, “suddenly you’re making them think of something inexplicable.”

Source: Financial Times