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Pain in Spain: whom it would hurt

The companies that stand to lose if Spain is forced to seek a bail-out
June 7, 2012

On Tuesday, the G7 was moved to convene a conference call to discuss the eurozone crisis while the UK was still recovering from its Jubilee party hangover. This illustrates how the crisis has moved on from concern about Greece to major worries about a much bigger potential economic time bomb, Spain, which poses a much larger threat to some UK-listed companies.

IC TIP: Sell

Credit markets are already threatening to pull up the drawbridge and cut Spain adrift. And Spain is a much more serious threat to the eurozone and, by default, the UK economy with a raft of UK companies watching the situation closely. The cost of issuing new Spanish debt has risen well above 6 per cent, and 7 per cent was the level beyond which Greece, Ireland and Portugal were forced to seek EU and IMF bail outs. On Tuesday Spanish treasury minister Cristobal Montoro admitted: "The risk premium says Spain does not have the market door open. The risk premium says that, as a state, we have a problem in accessing markets when we need to refinance our debt."

The Spanish economy is in deep trouble as growth has collapsed along with the property market and unemployment has soared. Any further deterioration leaves those UK companies with Spanish exposure with potentially significant problems. Spain is reluctant to formally ask for international help with the recapitalisation of its banks, which would cost an estimated €40bn, for fear of the conditions that would be placed on such money. But accessing funds by any other route is proving difficult - a bond auction on Thursday will be closely watched.

CompanyTIDM% revenue from Spain at last results
NorthgateNTG36%
National ExpressNEX25%
HornbyHRN14%
YellYELL13%
IAGIAG13%
VodafoneVOD11%
ColtCOLT10%

Source: Capital IQ

The likes of Yell and Northgate stand out. Yell because its business model is already under pressure even in healthier markets such as the US and UK, and Northgate because the van-hire business is highly correlated with economic activity. International Airlines Group is also notable because troubled Spanish bank Bankia owns 12 per cent of its shares.

At the time of the last Bank of England Financial Stability Report, Barclays was the most exposed UK bank to Spain in terms of retail lending, primarily through its Banco Zarogozana subsidiary.