Big firms going bankrupt in Spain: the names doing the rounds

Two big companies on the brink of bankruptcy: no clear winner in the guessing game

A person from the banking world lets slip that two huge companies in Spain are on the brink of bankruptcy. They don’t give names. They aren’t even sure about the only one they hint at. That material kicks off one of the longest guessing games in recent Spanish economic history: hundreds of bets, nearly six years of conversation and zero confirmations.

The starting point is spring 2020. Lockdowns, entire workforces on ERTE (Spain’s furlough scheme), activity at a standstill and a corporate landscape that starts looking at its balance sheets with a calculator in hand. In the background, a figure attributed to the Banco de España and circulating without any breakdown: around 20% of Spanish companies would be bankrupt. Nobody verifies it and everyone repeats it.

Why El Corte Inglés and Telefónica lead all the betting

The two names that appear most often surprise no one. El Corte Inglés is carrying a high yield bond issue —at just over 3%— of which it is claimed that a third ended up in the ECB’s hands, maturing in 2022. In the conversation’s kitchen-table accounting, that purchase is measured in “megatons”, the same invented unit used for the mortgage credit sarracena cited in the financial press. Irony aside, the diagnosis repeated is identical: if the central bank is holding the debt, the debt is bad.

Telefónica is the other regular. The thesis in circulation: valuable assets, ruinous investments that have to be covered and a management team investors don’t trust. The anticipated outcome is a takeover —by Telekom, by DT, by TIM-Enel— at a knockdown price. Add to that the State taking a stake and rumors of a merger with Vodafone, which some read as the final nail in the coffin.

Airlines: the sector that really was on the ropes

If there is a block where the numbers fit the word bankruptcy, it is tourism. IAG, Meliá and AENA jump out immediately. Air Europa, smaller, asked the government for 400 million to avoid going under. And the account from inside the airline business is the most detailed of the whole conversation: fuel hedged with futures at around 70% —all above market price—, barely one in three flights operating, almost the entire workforce on ERTE and planes that aren’t repaired: they are parked until the check.

The paradox is subtle. The fall in crude oil, which should bring relief, becomes a penalty because that 70% is insured at a high price. A manual on how a hedge stops protecting and starts getting in the way.

How many Spanish companies are really bankrupt?

Here the range explodes. Against the 20% attributed to the Banco de España, another estimate holds that 90% of companies would be obliged to file for insolvency proceedings if the law were applied to the letter. Two incompatible figures, both without a verifiable source, and an intermediate reading that is gaining weight: with loose monetary policy, insolvency disguises itself as refinancing.

The recurring joke: Spain as the biggest company in bankruptcy

The joke repeats every time the subject comes back: the country’s two biggest companies would be the Seguridad Social (Spanish social security system) and the SEPE (Spanish public employment service). Or the entire State. Or the Museo del Jamón, depending on the day’s appetite. There is more discomfort than humor in the easy line: when big companies depend on public aid, the boundary between company and government blurs.

The conversation also drifts towards institutional wear and tear. One side attributes it to political alternation in government; the response recalls that the starting point was a global pandemic that stopped half the world. No agreement.

Mergers, oligopoly and an adjustment that was always coming

A current has been warning for years about concentration: a shrinking market cannot sustain dozens of operators, so three or four remain to split the pie. Banking is the obvious example, but telecommunications is the laboratory. In the United States, four unlimited mobile lines are billed at 220 a month and a package with cable runs around 150; in Europe, dozens of small operators fight it out with rates and promotions that eat up the margin.

Under that logic, consolidation is not a threat: it is the script. States resist, say those who trinc the matter, but the path is already set.

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With that, the original question remains alive and unanswered: which two were they? Neither banking, nor the energy sector, nor El Corte Inglés nor Telefónica have collapsed in the way that was announced. Maybe the source exaggerated. Maybe the real list was never published. And what if the diagnosis was correct and the error was simply in the timing?