Bloomberg News

Spain Pulling Lottery IPO Signals Greek Asset-Sale Struggle

September 29, 2011

(Updates with details on attempted sale in sixth paragraph, comment from Spanish opposition in 13th.)

Sept. 29 (Bloomberg) -- Spain’s postponement of an initial public offering of its lottery operator shows how Greece and other deficit-laden nations are struggling to attract equity investment as the debt crisis deepens.

Spanish Finance Minister Elena Salgado said yesterday she pulled the sale of 30 percent of Sociedad Estatal Loterias & Apuestas del Estado SA to avoid selling it at a discount to the company’s 20.8 billion euro ($28.4 billion) book value. The sale was set to produce the biggest IPO in Spain’s history.

Axing the deal increases the amount of debt Spain needs to sell to finance the euro region’s third-largest budget deficit, just as investors charge the government more than 5 percent to borrow for 10 years. Spain’s failure to list a debt-free company whose sales have resisted the worst recession in six decades may signal difficulties for Greece, Italy and Portugal as they also pursue asset sales.

“It does imply the likes of Greece won’t be able to sell assets,” said Ben May, a European economist at Capital Economics in London. “It will be difficult for struggling governments to sell assets at good prices.”

Greek Finance Minister Evangelos Venizelos on Sept. 25 cut a target for raising revenue to pay down debt from state-asset sales to 4 billion euros this year from 5 billion euros.

Lost Revenue

Salgado said today there was “extraordinary” interest from retail investors, while institutional investors were interested “at a price we didn’t want to accept.” The decision to pull the deal doesn’t affect a separate tender to sell management contracts for Madrid and Barcelona airports, she said on state radio RNE today.

The estimated 7 billion euros in lost revenue from the sale won’t have a “significant” impact on debt issuance, she said last night in an interview on Cadena Ser radio. The Treasury said in a presentation to investors in August that the government expected to raise 7 billion euros to 9 billion euros from the lottery sale.

Spain has one bond redemption left this year of 14 billion euros, and expiring bills worth about 23 billion euros, according to data from the Treasury in Madrid. Government data show it had 40 billion euros in cash at the Bank of Spain at the end of June.

Borrowing Costs

Spain pays more than 5 percent a year to finance itself for 10 years, even after the European Central Bank began buying its debt in August on the secondary market. The extra yield over German securities widened to 314 basis points today while the Ibex-35 stock market index rose 0.3 percent, trimming its loss for the year to 14 percent.

Greece is also trying to sell assets as part of its pledges to the European Union and International Monetary Fund in return for bailout funds. Its plans include developing real estate and sales of stakes in companies such as Opap SA, Europe’s biggest listed gambling company. The market value of the government’s 34 percent stake is now 816 million euros after Opap’s shares lost 42 percent this year.

Portugal, which also received a bailout this year, plans to sell the state’s stakes in EDP-Energias de Portugal SA, grid operator REN-Redes Energeticas Nacionais SA and oil company Galp Energia SGPS SA this year, while Italian Prime Minister Silvio Berlusconi and Finance Minister Giulio Tremonti meet with bankers today in Rome to discuss their sell-off plans.

Local Services

The privatization plans focus on selling off local service companies, excluding water utilities, preparing state-owned real estate for sale and earning more from licensing property use. Much of the proceeds from regional asset sales would remain with local governments, while the Finance Ministry predicts that selling off real estate and earning more from concessions could bring in 200 billion euros in the next two to three years, newspaper Il Sole 24 Ore reported today. That’s equivalent to almost 15 percent of gross domestic product.

Spain’s opposition People’s Party, which polls indicate will defeat the ruling Socialists in the general election on Nov. 20, had criticized the government’s decision to sell the lottery. The PP, which privatized assets when it governed in the eight years through 2004, won’t sell the lottery if it wins the election, Efe newswire cited Esteban Gonzalez Pons, the party’s deputy communications chief as saying today. Cristobal Montoro, the PP’s economics spokesman, left the door open to a possible sale in an interview with TVE, saying the lottery “can be sold, but shouldn’t be given away.”

Changing Plans

At least 24 new stock sales were postponed or canceled in western Europe this year, almost twice as many as a year earlier, according to data compiled by Bloomberg. Investors are shunning IPOs as concerns over burgeoning European sovereign debt pushed the benchmark Stoxx Europe 600 Index to near its lowest level in two years.

The decision marks a U-turn for Salgado, who said on Aug. 19, when the Ibex was showing a 17 percent loss for the year, that market conditions wouldn’t affect the sale.

“In IPOs, people look at the debt, which is zero, the record of profits -- which it has had for 250 years -- and the stability of sales, and the most sales have fallen was 0.5 percent in the worst moment of the crisis,” she said in an interview in the ministry in Madrid.

The company runs the world’s biggest lottery, the annual Christmas draw known as El Gordo, or the Fat One, which had a prize pool last year of 2.3 billion euros. Loterias, operating for nearly 250 years in the world’s fourth-largest lottery market, had 2.6 billion euros of profit in 2010, according to the annual report.

Goldman Sachs Group Inc., JPMorgan Chase & Co., UBS AG, Credit Suisse Group AG, Banco Bilbao Vizcaya Argentaria SA and Banco Santander SA are lead managers for the IPO, Loterias said in July.

--With assistance by Zijing Wu in London, Angeline Benoit in Madrid, Maria Petrakis in Athens and Joao Lima in Lisbon. Editors: James Hertling, Andrew Davis

To contact the reporter on this story: Emma Ross-Thomas in Madrid at

To contact the editor responsible for this story: Craig Stirling at

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