International edition
September 20, 2021

The deal was fiercely opposed by the centre-right People's Party

Spain suspends LAE's IPO on political and bank pressure

(Spain).- Spanish ruling Socialists abruptly cancelled plans to boost public coffers by selling part of the state lottery for up to us$ 12 billion, under pressure from the centre-right opposition party and banks fearing they would be choked of funds, market sources said.


ookbuilding was supposed to begin on Friday on the public offering of 30 percent of Loterias, but the deal was fiercely opposed by the centre-right People's Party, which opinion polls show winning November elections.

Added to that, Spanish banks involved in the sale, Santander and BBVA, saw Loterias as a direct rival to their need to bolster capital, by attracting would-be investors away from their deposits.

"I know for a fact that pressure from the banks involved is the reason behind this decision. The banks need capital to shore up their balance sheets and Loterias was direct competition. It would have attracted investors who would otherwise have opened deposits which the banks badly need," said a fund manager at one of Spain's largest institutions.

Loterias, or LAE, known for the Christmas "El Gordo" draw, is seen as the jewel in the crown of Spain's remaining state-owned assets. It has the largest prize fund of any lottery in the world, last year paying a total of 2.3 billion euros.

The sale was going to be Spain's biggest IPO ever, and one of the largest in Europe. It is one of many reforms Spain has adopted as it fights to keep from being sucked into the euro zone debt crisis. Up to now, Madrid has consistently met or even exceeded expectations with austerity measures to drag it out of its debt mire. Any signs of weakening political resolve, could be seized upon by the markets.

The economy ministry said the sale had been cancelled because it was not going to get the price the government wanted due to declines in global equities markets. "If the price the placement agents had recommended us this afternoon for including in the prospectus had been suitable, we would have gone ahead," Economy Minister Elena Salgado said on SER radio late on Wednesday.

But sources close to the deal said the pressure from the opposition PP, which accused the Socialists of selling off Loterias for too low a price, was key to the decision. "This is totally bowing to opposition pressure. But it is a shambles for Spain. There is now less money to reduce the borrowing requirements and more risk premium because the country has not been able to sell its prize asset," said one source close to the deal.

The PP's economy secretary, Cristobal Montoro, said earlier this week the sale must be stopped. "It is not to do with interest per se. This seems very political," said another source, who said bankers had been keen to push ahead.

While revenue from privatisation sales cannot be used to reduce annual public deficits under European Union rules, the proceeds from the Loterias share sale would have allowed Spain to trim its plans for some 190 billion euros of debt issuance this year. 
Spain's borrowing costs have soared since its deficit far exceeded European Union limits in 2009 and the euro zone debt crisis stoked fears the government may not be able to bring its budget back to sustainable levels. Premarketing for the initial public offering had kicked off on September 19.

"The attractiveness of LAE as an investment has not been in doubt I would say. It's a cash cow, debt free and was going to pay out 95 percent of earnings as dividend," said a leading U.S. fund manager based in London. "But the uncertainty of a new government, which has been against the deal coming into power, may have spooked some foreign investors," he said.

Sources close to LAE have said that initial meetings between management and 22 investors in London and Zurich earlier this month had gone well and the only concern expressed had been about the outcome of Greek debt renegotiations.

Demand from retail investors was expected to be particularly robust given Spaniards' enthusiasm for the national lottery.

LAE, whose small branded stores on street corners are as much a part of Spanish town life as the newspaper kiosk or neighbourhood cafe, has sales currently running up over 3 percent year-on-year.

There had been speculation for about two weeks that the sale could be cancelled. But Salgado and banking sources had insisted it was moving ahead, saying poor market conditions would not affect the sale of such a unique asset with such a steady revenue stream. The economy ministry said in a statement that the sale could be resumed when market conditions improved.

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