Bulgaria to go ahead with EUR 1.5bn Eurobond despite rating downgrade, run on local bank - report

By bne IntelliNews June 25, 2014

Bulgaria will stick to its plan to issue a EUR 1.5bn Eurobond despite S&P's recent sovereign credit rating downgrade to BBB- and an expected state intervention to rescue troubled local lender Corpbank as these are not expected to push yields up to unattractive levels, according to two sources familiar with the sale, quoted by Reuters.

Bulgaria began an European investor roadshow on June 23 in a bid to raise money to finance this year's planned budget deficit of BGN 1.5bn (EUR 767mn) and also to retire some USD 1.1bn worth of USD-denominated global bonds that expire in January 2015.

One Reuters source said that the rating cut and the Corpbank events will pressure the yields, but there would not be a massive correction.

S&P lowered on June 13 Bulgaria's sovereign credit rating by one notch to BBB-, just one notch above junk. A week later, Corporate Commercial Bank (Corpbank), Bulgaria's fourth-largest lender, asked BNB for help, realising that depositors are withdrawing vast amounts of cash, triggering a bank run. BNB acted immediately by freezing all of the bank's operations and taking control over it. Depositors were queuing outside Corpbank cash points prompted by the indictment of Tsvetan Gunev, the deputy governor of the central bank in charge of supervising lenders and their loan books, as well as by various media speculation.

Gunev allegedly failed to act when Corpbank exceeded the limit for bad loans after it lended money to firms associated with its controversial majority owner, Tsvetan Vasilev. If the allegations turn to be true, this would mean that Corpbank may be facing a capital black hole, on top of its liquidity problems.

The government of PM Plamen Oresharski intends to rescue the bank by writing off the stakes of Corpbank's current shareholders and it would also order the state-owned Bulgarian Development Bank and the country's Deposit Insurance Fund to inject capital into the banking group. The amount of the capital needed to prop up the banking group will become known only after independent auditors carry out a full audit of its books.

Bulgaria is expected to set the terms on the Eurobond on Thursday (June 26), which may be split into two tranches of different maturities. Jefferies bank analyst Richard Segal, who attended the roadshow, expects one tranche of 7-to-10 years' maturity and another at 15 years, Reuters said.

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