A reader of our recent piece on Spain's international investment position seems to be confused about what we were portraying. It is not a proxy for foreign debt.
1). The Spanish reader issues a $300, 4 percent bond with a two year maturity to an English investor on October 8, 2008. Book $300 of foreign debt against the country;
2). The proceeds are used to buy three shares of a $100, 4 percent dividend paying American company . Book $300 of foreign assets. Net position for the investor (and the economy, except as perceived by markets in moments of credit stress) is zero;
3). Come redemption date for the bond, the reader sells one share for $300 (AAPL, if it were to pay a dividend) repays the hundred and retains the remaining two-thirds. Spanish foreign debt lowers by $300. Net investment position $200 higher than it was at the beginning.
In the case of Ferrovial (with a high degree of indebtedness to foreign lenders), part of the money borrowed was spent to develop the asset that is the 407 ETR. They've now cashed in part of that investment and will (most likely) be using the proceeds to pay down mostly foreign-held debt. That the operation was profitable means that they will likely be paying off more than was specifically assigned to that project.
That foreign assets are currently greater than they were at the beginning of the crisis, whilst liabilities remain less, is a partial testimony to good investment decisions. And with FT Alphaville seeming to confirm that the market for business assets is currently thriving, we might expect to see more of this in the future.
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6 Comments:
Umm, Charles re this post and return trip below any idea of % of foreign investment in term of govt or quasy govt ownership?
Hmm. I know I can't answer it, but I'm not even sure I know what you mean. Examples?
Hey, pues no. I am not confused at all. At this point, I am starting to doubt wheter you are.
You made a pretty big boo boo, i.e., you put the labell "assets" and what are "liabilities" and viceversa. That's cool. Happens to all of us.
What is not so cool is that you were called on it, and instead of acknowledging it, you are now blowing some smoke about how Spanish business are such incredibly awesome speculators that they have turned a decade-long double-digit current account deficit into a net creditor position, a development unparalleled in history without an intermediating default.
If you haven't done so, please check the link I sent you and your data. You got it exactly backwards. Spain international financial position is negative and large. Its business sector accounts for the lion share of the *net* negative position, mostly though its banks. Its net international liabilities are over 200% of GDP, and its assets about 100%, *not* the other way.
Correction: in the last paragraph, where it reads "net international liabilities", it should say "gross international liabilities".
Chill out, kiddo!
http://www.bde.es/webbde/es/estadis/ccff/0221a.pdf
Net financial assets - 953,029,000,000 euros, about 90% of GDP.
Learn to distinguish between current and capital accounts and how entries move between the two before insulting your generous host.
You really, really, really want to maintain, publicly, that Spain is a net creditor to the rest of the world????
I mean, really? Do you have that little faith in your readers?
And then you link to a page that clearly states it is the balance for the *rest of the world*. I.e., the mirror image of Spain! 953 billion is more or less Spain's net debtor position.
Look at it here, with graphs and everything.
http://www.bde.es/webbde/es/estadis/infoest/e0706.pdf
Latest "posicion de inversion internacional neta (activos-pasivos): -915.5 billion euros" - as of Q2 2010.
Mr. Butler, stop digging.
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