Float On: Shares in Spain

I have a solution for all Spain's economic woes. As far as I am aware, my solution is mine and mine alone. It is, therefore, a unique prescription, and as such, I claim my Nobel Prize for Economics.

What is this solution? It is in fact very simple. Spain should float itself on the stock exchange. Several stock exchanges: London, New York, Frankfurt and Shanghai. Offer shares in Spain S.A. and the money would flow into the country. It beats me why no one has never thought of this before.

Floating on a stock exchange removes all the nasty consequences of raising money through bond issues, i.e. debt financing, such as high interest rates, failing to meet payment deadlines and guaranteeing sound cash flows. Equity financing, on the other hand, comes without the interest rates, with the cash flows, because cash isn't needed to repay interest, and there are no deadlines for payments as shareholders aren't necessarily guaranteed dividends.

Were Spain to float itself, it would need to introduce itself to the market with a prospectus. Think of all the advantages it could boast: dynamic economy, highly skilled and highly educated workforce, scrupulous politicians ... erm, well, there might be a slight problem with some of these, but then there would also be pristine beaches available for construction (and there are some which remain), world-beating football teams and a thriving donkey-with-straw-hats market. The advantages to an investor would certainly outweigh any small disadvantages, like the country being up to its neck in debt.

I'm not sure how one would value the shares, as there isn't an obvious precedent, but doubtless some consultant or banker could come up with a reasonable valuation, somewhere between a handful of centimos and a million euros per share. Let's just say that ten million shares were made available for an initial offer at 500 euros a pop, that would be 5,000 million, just like that, and only for starters. What would there be to stop more share offers being released? There would be no worries about any tax, as the country would simply be paying itself, always assuming it gets its fiscal domicile right.

A further matter that would need to be addressed prior to flotation would be the make-up of the board and the management. Sorry, Sr. Rajoy, but I think you would need to be ditched. A more acceptable CEO would be required, a foreign one even, like the Canadian who has just got his hands on the Bank of England's billions or a high-flying businessman. Michael O'Leary, for instance. They could always make the King honorary chairman or some such.

A mechanism would also be required to ensure correct governance, a pretty alien concept to the Spanish corporate world, and so stop whoever was on the board just siphoning off the profits in the form of a bonus or handing them over to mates. A tricky one this, as the natural reaction of Spanish politicians or businesspeople, when confronted by a pile of easily made loot, is to grab hold of it for themselves. Strict remuneration and audit committees would need to be established. Merkel, Merkel and Merkel of Berlin might be called on to oversee them.

As far as I can see, there are few obvious disadvantages with the flotation scheme. One might be that investors see through the whole thing and reject a valuation that is more than a handful of centimos. But I fancy there would be plenty of suckers knocking around who would want a piece of the action as well as those who aren't suckers. Like the Chinese, for instance. As they already own a good chunk of Spain as it is, thanks to the buying of bonds, then shares should be attractive to a savvy authoritarian regime that wishes to diversify its investment portfolio and export its own brand of imperialistic commie-capitalism. This does, though, raise the minor drawback of Spain being acquired, as in an investor or investors start snapping up shares. China might well fancy buying its own European country, but never mind, it would do wonders for Chinese tourism.

Another slight drawback could be the underwriting of the share offer. Which would mean a bank or banks. There again, Spain has some fine examples of highly liquid and properly managed banks that could do the job. Bankia would be one. So, no problem here.

Overall, therefore, the perfect solution to Spain's economic crisis. Please note that the value of shares can down as well as up.


THE QUIZ IS BACK! Yes, everyone, it's back. "Mmm, take my hand. Come with me baby to love land." Which group was responsible for this abomination and for floating on? Easy. Answer tomorrow.


Any comments to andrew@thealcudiaguide.com please.