Ibex Increases Financial Burden by 10.4%, Acciona and Indra Lead | Financial Markets

High liquidity, the sale of non-strategic assets and the extension of the average maturity of the debt portfolio are the strategies that have allowed companies and governments to keep the cost of debt fixed, while central banks have accelerated interest rate hikes to contain inflation. But nothing lasts forever. Two years after the end of zero rates, and with the effects of the first rate cut in the eurozone still to be felt, companies are beginning to suffer the cumulative effect of interest rates at their highest in two decades. Non-financial companies from the Ibex 35 list have been steadily increasing their debt, and the increase in the financial burden has become even more aggressive. The increase in debt, combined with the increase in the cost of financing, led to an increase in the financial burden by 10.4%, to $ 5,299.9 million at the end of the first half of the year.

However, the growth has not been the same for all companies. While some, like Indra, have tripled their interest burden, others, like Iberdrola and Colonial, have managed to reduce it. The increase in cash flow, combined with the sale of assets in Romania and the sale of 13 power plants to the Mexican government, has allowed Iberdrola to accelerate investments without the need to raise capital, reducing debt by 90 million. At the end of June 30, the Spanish electricity company’s liabilities amounted to $ 45.2 billion. Although the debt has been reduced, the average cost of debt has managed to fall by 16 basis points, to 4.89%, which is some distance from the 3.18% recorded at the end of 2020, when interest rates remained fixed at 0% and the ECB launched an emergency debt purchase program. The aid was used by government issuers to finance measures to support the economy, while companies increased their liquidity buffers to cushion the impact of the paralysis of economic activity.

In the first half of 2024, Iberdrola continued to deepen its sustainable financing, issuing 700 million green hybrid bonds at 4.87%, the lowest rate for an issue of this type at the beginning of the year, and 335 million Swiss francs (350 million euros) in two tranches. In addition to the $21.7 billion in liquidity that covers financing needs for the next 24 months, the utility’s debt portfolio has a maturity of about six years, slightly below the 7.94 years of the Treasury’s debt portfolio.

Colonial has not escaped punishment in the real estate and stock markets, two of the sectors hit hardest by the rise in the cost of money. For months, analysts have been repeating that its fundamentals do not justify the 40% drop it has recorded from its 2021 highs. In addition to a 2.9% reduction in liabilities to 4.892 million, the average cost of debt at the end of June was 1.74%, below the 2.17% that the Treasury pays on the debt in circulation and virtually unchanged from 1.69% four years ago. That’s because 100% of the debt is tied to a fixed rate and because Colonial has 2.995 million in liquidity, allowing it to pay off all of its debt by 2028. That means it has managed to reduce its refinancing risk at a time when rates are hovering near their highest in two decades.

A similar strategy is followed by Merlin, which, in addition to the fact that the average debt maturity is 4.8 years, has 97.2% of its liabilities at a fixed rate. The increase in the financial burden by 16.39% in the first half of the year is explained by an increase in debt by 5.64% to 4.157 million rubles. The average cost of this debt increases by 23 basis points, to 2.49%, which is not far from the 1.97% recorded in June 2020.

Aena and Enagás are below the 3% cost of debt barrier. Improved results, as air traffic has returned to pre-pandemic levels, have allowed the airport manager to improve its balance sheet. Although financial debt has barely decreased by 87 million over the past four years, the debt/EBITDA ratio has increased from 8.1 times recorded at the end of 2020 to 1.89 times at the end of June. With 74% of debt at a fixed rate and an average maturity of 5.9 years as of June 30, the average interest rate is 2.59%, slightly higher than the 1.9% recorded a year earlier and far from the historical minimum of 1.07% it reached in the year of the pandemic.

Société Générale points out that after years of frozen corporate emissions, in the first half of 2024, companies were responsible for an increase in emissions for the year of 9.1 billion. This group includes Enagas. The gas company’s return to the capital market has not been an obstacle for the company to keep the cost of debt below 3%. At the beginning of the year, the company took advantage of the high liquidity of its portfolios and the interest of investors in providing attractive returns and sold 10-year debt worth 600 million at 3.625%. This, together with the sale of its stake in Tallgras last July, will allow it to repay 700 million in bank debt ahead of schedule and partially redeem bonds maturing in February 2025. Thanks to this operation, the company will be able to reduce the debt it had. debt currently accounts for more than a third. At the end of June, it stood at 3.164 million, for which it pays an average of 2.8%, slightly higher than the 2.6% recorded in June 2023. In 2020, good market conditions helped it lower its average rate to 1.9%.

Among the companies listed that are paying the most on their debt are the Acciona and Indra group companies. The parent company of the group, chaired by José Manuel Entrecanales, increases its financial burden by 87.28%, an increase that is explained by the increase in debt to 8.229 million and an increase in the cost of financing by 180 basis points, to 4.76%. Until June 2023, the company managed to maintain its cost of debt with slight variations in the range of 2.8%-2.96% over the past four years. For its part, the Acciona Energía subsidiary, dedicated to green energy, increases its liabilities by 32.78% to 4.606 million, while the average cost increases from 4.32% in June 2023 to 4.93%. As a result, the financial burden rises to 227 million, up 51.5% from the previous year.

The heavy financial burden that Indra has to bear is explained by the increase in debt by 97.87%, to 93 million euros, which is a noticeable increase, but nevertheless remains one of the lowest among companies listed on Ibex. The cost of financing increased by 150 basis points, to 4.3%. In the half-year report, they admit that the increase in Euribor has damaged the average cost and reduced the financial result to 17 million.

Telefónica, which has traditionally carried the heavy burden of being one of the most indebted companies on the Spanish stock market, cannot shake off this label. After years in which asset sales helped the company reduce its liabilities, at the end of June its net debt excluding leases stood at 29,240 million, up 6.4% from the previous year. Although the operator is one of the most active Spanish issuers year after year, the timing of its entry into the market, combined with a liquidity of around 18,900 million (in 2021 it reached a record 21,000 million) and an average life of 11 years of debt portfolio, have contributed to a gradual increase in the cost of financing. At the end of June, it was 3.58%, slightly higher than the 3.47% recorded 12 months earlier, but lower than the 3.8% at the end of 2023. Telefonica’s financial burden amounts to 1,046.79 million, an increase of 9.78% compared to the same period last year.

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