Fitch joins S&P in issuing Catalonia debt downgrade warning

[PARIS] Fitch on Thursday warned it may downgrade the sovereign debt rating of Catalonia, a day after fellow ratings agency Standard & Poor's issued a similar report as tensions with Madrid escalate over the region's push for independence.

Fitch said that the political tensions between the central government and Catalonia "are likely to worsen over the short term.

"This may lead to unforeseeable events, including a potential disruption of the state liquidity funds to Catalonia," the ratings agency added.

Late Wednesday S&P Global Ratings placed its ratings for Catalonia "on CreditWatch with negative implications" saying that "the Catalan government's political confrontation with Spain's central government has escalated" following the banned referendum in Catalonia on October 1 on the region's independence.

"We see a risk that this escalation may damage the coordination and communication between the two governments, which is essential to Catalonia's ability to service its debt on time and in full," the S&P statement continued.

As a result, S&P said it would place Catalonia's ratings - currently "B+/B" - "on CreditWatch with negative implications".

The agency said it expected to "resolve the CreditWatch within the next three months".

Fitch put Catalonia on a 'rating watch negative' footing, meaning it could downgrade from its current BB level, which is already in the "speculative" or junk territory.

In Spain's worst political crisis in decades, Catalonia held an independence referendum on Sunday, although the vote was banned by Madrid.

Images of police beating unarmed Catalans taking part in the vote sparked global concern.

Catalonia is a major engine for Spanish growth, and accounts for around 19 per cent of its GDP.

Spain's key IBEX 35 stock index rebounded Thursday from sharp losses the previous day, as the Spanish government moved to block a move by Catalonia to declare independence crisis, Fitch in its statement said it expected the current tensions between Madrid and the Catalan authorities to ease.

"In the medium term, our central assumption remains that current tensions will ease, and that there will be a continuation of the ongoing support of the central government to Catalonia for its debt servicing."

AFP