Catalan Exports to Suffer the Most in case of a Unilateral Independence Declaration.
CRIF Ratings (CRIF) does not expect a significant impact on Catalonia’s GDP as a result of a change in the legal domicile of companies and/or banks’. While banks such as Sabadell and Caixabank have already re-domiciled their legal headquarters (HQ), other listed companies such as Gas Natural, Abertis or Catalana Occidente have adopted or might embrace such decision over the next few days. Last week the Spanish government approved a royal decree to facilitate the change of legal domicile (from Catalonia to the rest of Spain): we think the impact on the regional GDP will be limited because a change of legal HQ will be pursued primarily by listed or large companies which represent a very small portion of companies present in the region. According to Informa (Spain’s business information leader), as of July 2017 only 0.1% of Catalan companies employ more than 250 people and are therefore considered large corporates. The vast majority of companies in the region are either small and medium (3.3% and 0.6% respectively) or micro-companies (accounting for 96% of the total). In CRIF’s view, SMEs do not have enough means to adopt measures to change domicile or location given the economic and logistic costs associated to the moving.
“The re-domiciling of banks makes perfect sense given the regulated nature of their business, in order to preserve the banks’ full access to the ECB and to avoid market fluctuations under a potential unilateral independence declaration by the Catalan government in the next few days. It’s a defensive move to protect the stakeholders’ interests and insure business continuity”- says Borja Monforte, Head of International Operations at CRIF Ratings. “A relocation of companies would certainly have a significant impact but this seems less affordable and not to so compelling for the time being. A re-domiciling will slightly impact the collection of certain taxes, but employees and activity should remain the same”-adds Monforte. Catalan listed companies and subsidiaries of international groups might be tempted to transfer their legal HQ to Spain despite not operating in a regulated environment to alleviate potential market pressure and uncertainty linked to stock and bonds prices.
Under a scenario of unilateral independence of Catalonia and assuming that no agreement on trade terms is reached between Catalonia and the European Union (EU), CRIF highlights that SMEs could be severely impacted given the loss of access to the EU common market. The political turmoil generated by the referendum which could lead to the scenario of a separation from Spain, is clearly not beneficial for initiating a prompt and fruitful negotiation of trade terms between the contenders. Similarly, chances that Catalonia manages to activate negotiations with the EU in the short term, following a unilateral declaration of independence, are probably slim. Hence the adoption of export duties on Catalan products by the EU, including Spain, is a realistic scenario. Currently, around 65% of total Catalan exports are to the EU, while Spain remains the largest customer of Catalonia. Catalan exports represent almost one third of the region’s current GDP while Spanish (excluding Catalonia) export activity generates around 20% of total economic activity. On the other hand, CRIF notes that Catalonia plays a central role in the logistics of both Spanish exports and to European imports. In a scenario of separation, we believe a trade agreement would clearly be beneficial for both sides but the lack of it would probably be more harmful to Catalonia given its major exposure to foreign trades.
Borja Monforte, Director- Corporate Ratings
Head of International Operations
Tel: + 34. 126.96.36.199