Daily Chronicle

Medcad Forum 2021. Let the recovery begin: Spain looks to the future


Attended by more than 100 companies and 250 institutional investors, of which 50% were based outside of the Spanish market, BME’s annual Foro Medcap Conference took place between May 25-27. In addition to being a source of cutting edge thought leadership, Foro Medcap is widely considered to be a premier networking event, with BME organising over 1,200 one on one meetings between companies and prospective investors.  COVID-19 sparked unprecedented disruption across both equity and debt capital markets globally including here in Spain. Despite all of the existential challenges which the pandemic has caused, the green shoots of a recovery are starting to appear in the domestic market. Speaking at last month’s Foro Medcap Conference, a number of industry leaders shared their unique insights into some of the main dynamics currently shaping Spain’s capital markets.

Recovering from the abyss

After posting a record economic contraction of 10.8% in 2020, the Spanish government is projecting GDP (gross domestic growth) will grow by 6.5% in 2021 – down from previous estimates of 7.2% - 9.8%. Beyond 2021, the government reckons GDP growth will reach 7% in 2022 – buoyed by rising vaccination rates – before slowing down to 3.5% in 2023.[1] The pandemic is still ongoing,  but key domestic industries – including tourism, which accounts for 12.4% of Spain’s GDP and employs 13.5% of its workforce – are recovering. Victor Marti Gilabert, CEO at Atom Hotels, said that after a period of prolonged bad news, tourist bookings and reservations are once again reaching their pre-pandemic levels. Elsewhere, panellists at Foro Medcap said that the EU’s reaction to the pandemic – namely the €1.8 trillion in emergency funding to help rebuild member states’ economies – was swift and decisive, at least relative to the bloc’s response to the sovereign debt crisis back in 2008-2012. Out of this total rescue package, Spain is poised to receive approximately €140 billion in EU funds. These funds will be vital in ensuring the EU’s recovery and future resilience “Fifteen years ago, the world together with Spain went through a huge crisis - which nominally we do not see more than one or two times in a lifetime. We have recently  gone through a similar crisis but the EU’s response has been much different this time,” noted Gonzalo Garcia Andres, the Secretary of State for the Economy and Business Support.

Ever since the 2008 financial crisis, interest rates across the eurozone have been at historic lows and most experts at Foro Medcap anticipate this trend will persist for some time. Santiago Carbo, financial analysis director at Funcas, concurred it was unlikely that  rates in the eurozone will increase. However, he warned that if interest rates did rise, so too would the number of corporate delinquencies. He added such a scenario could also make it much harder for companies to obtain funding. Carbo also said the low and negative interest rates have stifled fixed income returns, which is causing dysfunction in the market, evidenced by the increased investments in speculative assets like crypto-currencies. Carbo argued that inflation is a risk for the US and a handful of European markets, before adding it would only be a temporary phenomenon-   fuelled by pent-up consumer demand.

Public markets versus private markets – taking companies to the next level

Successful companies are facing a dilemma nowadays as to whether they stay private for longer or go public. A number of organisations are opting for the former as the prevailing low interest rates means that borrowing costs are low. There is also record amounts of dry powder – or unspent cash – in the private equity industry which needs to be deployed. Susana Alvarez, professor of economics and finance at the University of Oviedo, said going public creates added costs for companies as it subjects them to greater reporting requirements.  However, the decision to list does confer many advantages. “While it is true borrowing is very attractive today, many companies are taking a long-term approach towards their financing structures. With the increasing risk of inflation and interest rate rises, the stock market is an appealing option,” said Jos Dijsselhof, CEO at SIX Group and Chairman of BME. He continued that listing on regulated exchanges such as SIX and BME meant companies are subject to robust accounting, governance and disclosure standards -making them more attractive for investors.

By raising money through the public markets, companies can benefit from greater liquidity, enabling them to invest more into their businesses and fund expansion. This is echoed by several panellists. Ibon Naberan, general manager and CFO at All Iron Socimi, said the transparency and accountability obligations imposed on publicly traded companies made it easier for businesses to win investor trust and confidence. Listed companies can also extract more favourable lending terms from banks – again allowing them to invest more in their businesses. “The visibility of being listed means banks are more willing to lend money at favourable rates thereby reducing the cost of financial debt,” said  Manuel de Luna, deputy CFO at Ebro Foods. Furthermore, publicly traded companies are at an advantage from a diversification perspective as they will have a wider range of underlying investors. “Some privately held companies will only have one shareholder, which is a risk should that shareholder divest or wind down their holdings. This would prevent the company from growing.  Public companies have a wider shareholder base, so it is easier for them to fund their future plans and be more agile,” said Naberan. To date, Europe’s IPO activity has been buoyant in 2021. According to PwC, European IPO issuances in Q1 2021 have already exceeded last year’s total, with 86 listings raising €26.2 billion, versus the €20.3 billion accumulated during the whole of 2020. [2] 

SMEs seek funding from alternative sources

In comparison to North America, European SMEs are less likely to tap into capital markets preferring instead to obtain their funding from traditional banks. For example, non-bank funding accounts for 73% of corporate financing in the US but it comprises just 24% in Europe. However, SMEs are increasingly seeking out funding from capital markets, including at alternative venues. This comes as COVID-19 makes it harder for some SMEs to obtain bank financing. For example, institutions such as the BME Growth Market are helping Spanish (and other European) SMEs access financing to grow their businesses, a move that could one day pave the way for these entities to list on the main market. 

BME also enables SMEs to obtain debt financing through MARF-Spain’s alternative fixed income market. One of the primary advantages of MARF is that it is a cost-efficient venue for issuers to list on, which has helped boost its appeal among European SMEs. MARF’s flexibility is a vital ingredient behind its wider success, acknowledged Antonio Garcia-Zarandieta, CFO at CAF. “MARF provides an entry point for SMEs looking to access the funding markets. One hundred companies have issued debt on the MARF since it first launched back in 2013. The size of these companies is extremely varied with some having a turnover of around €30 million whereas others are turning over in excess of hundreds of millions of euros,” said Gonzalo Gómez Retuerto, general manager at BME Fixed Income and MARF.  Despite COVID-19 causing a temporary stoppage in issuances between March - April 2020, activity quickly rebounded with issues totalling €9.6 billion last year, only a moderate 7% drop from 2019. At year-end 2020, the total amount outstanding on the MARF stood at €5.3 billion - up 3.8% from 2019.

SMEs in Europe also are attracting greater equity funding from investment firms including venture capital and private equity. Carlos Conti, general partner at Inveready, said a number of SMEs are obtaining financing in the form of convertible bonds, a type of hybridised financial instrument which allows investors to convert their debt holdings into equity. This early stage capital allows SMEs to grow their businesses – through M&A – for instance – before (hopefully) going public. However, SMEs do need to demonstrate value if they are to attract funds. “Companies must show they have a strong track record and experience. They must show they have delivered value with any previous funds raised and can produce recurrent revenues. Similarly, companies should showcase their R&D abilities and an ability to scale,” said Herna´n Scapusio, CEO at Agile Content. However, EU schemes – like the CMU (Capital Markets Union) – which are designed to make it easier for SMEs to raise funds on a cross-border basis have delivered mixed results so far. Dijsselhof said the rationale behind CMU was solid but conceded the lack of EU harmonisation meant it was still a long way away from achieving its goals.

A green recovery takes precedent

A greater focus by companies on sustainability is going to be integral to facilitating an EU-wide renewal, said Javier Hernani, CEO at BME. The decision by companies -  more generally-  to embrace ESG principles is also a trend which has been accelerated by the COVID-19 crisis, according to Juan Lo´pez-Belmonte, CEO of Laboratorios Rovi. This comes as regulators, governments, ratings agencies and investors are becoming increasingly vigilant on ESG, something which has forced listed companies into taking the issue more seriously. Most notably, ESG regulation  in the EU – such as the Sustainable Finance Disclosure Regulation [SFDR] - will force institutional investors to disclose how sustainability factors are incorporated into their portfolio decision-making. This is likely to result in more investors exerting greater ESG pressure on companies in their portfolios. Lola Solana, head of small caps and ESG equity funds at Santander, commented that while profitability was still the central tenet underpinning investment decision-making, non-financial factors like ESG are now major drivers too. In fact, some leading institutions, including Norway’s sovereign wealth fund, are actively divesting from non-sustainable companies as they view these businesses as being a long-term investment risk.

Nonetheless, ESG investing is not a binary issue, noted Karoline Rosenberg, a fund manager at Fidelity. Rosenberg continued that it was important for institutions to still invest in sectors - which at the moment may not be considered entirely sustainable – but which require funding to become greener in the future. Such financing, she added, is helping previously pollutant sectors - such as the auto  industry -  green themselves through the development of electric-vehicles. However, ESG investing can be a challenging process. Iker Barron, CEO at Portocolom, said the lack of standardisation of ESG data continues to be a problem. In many cases, companies do not adopt a harmonised approach when reporting on ESG to investors or ratings agencies. This is exacerbated by the fact that there are a number of competing ESG industry standards, all of which will have their own characteristics and divergences. In addition, many ratings agencies – who provide ESG scores on companies and then share this information with underlying investors – use different methodologies when determining ESG ratings. Again, this simply complicates the ESG investment process as some agencies will reach different conclusions or provide conflicting ratings on identical companies. The EU is hoping to resolve these problems by introducing the Taxonomy Regulation, under a which a framework will be created outlining what economic activities are sustainable. This could   bring clarity for ESG investors.

Is a green bubble about to burst?

With so much emphasis being put on ESG nowadays together with the general push towards achieving net zero, valuations of sustainable companies have skyrocketed, fuelling concerns about a so-called green or sustainable bubble. According to Bloomberg data, the S&P Global Clean Energy Index – a benchmark that tracks the share prices of 30 companies- has doubled in value over the last year, giving it a valuation which is x41 of its companies’ expected profits.[3] Jose Nunez, CFO at Soltec, said that while competition was very saturated in some markets, he stressed that the transition towards renewable energy was not a temporary phenomenon but a permanent shift. He added it was essential for renewable energy  companies to be properly diversified if they are to increase their overall market share.

Into 2022 we go

The last 18 months have been extraordinarily difficult but  capital markets are starting to show signs of life once again. Companies are arguably spoilt for choice in where to obtain financing from. In the case of SMEs, many are now embracing alternative venues such as the BME Growth Market and MARF. However, it is  clear that any recovery will need to be one that puts sustainability principles at its core. 


[1] Reuters (April 9, 2021) Spain cuts 2021 growth forecast to 6.5% after first quarter contraction

[2] PwC – IPO Watch – Europe 2020

[3] Financial Times (February 9, 2021) Green bubble warning as money pours into renewable stocks

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