Hungary revs up return to global debt markets with roadshow

By bne IntelliNews January 15, 2013

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Hungary has hired a group of banks to organise a roadshow "in the coming weeks" for its first debt sale on international markets for close to two years, and plans to raise up to €4.5bn in foreign currency in 2013, the country's Debt Management Agency (AKK) announced on January 14.

BNP Paribas, Citigroup, Deutsche Bank and Goldman Sachs have been hired to arrange meetings with investors in Europe and the US, AKK said in a statement, according to Bloomberg. In a separate release, the agency said it plans to issue debt of €4bn-4.5bn on the international markets in 2013. "The AKK will determine the timing and currency type of capital market issuance based on the market environment," it said.

Plagued by erratic policymaking and the Eurozone crisis, Budapest last accessed the international markets in May 2011, instead relying on local currency debt auctions and a handsome trade surplus to finance itself as it spent the last year suggesting it was hoping to negotiate a bailout with the IMF and EU. However, the possibility of an IMF loan pretty much disappeared in the fourth quarter of 2012, and the international debt issue will drive the final nail its coffin.

Hungary has been trying to ward off admitting that fact, fearing the reaction of the markets, but faced with a debt redemption schedule totaling €5.1bn in 2013 it is running out of foreign exchange reserves. At the same time, with the liquidity washing around the globe pushing CEE yields to historic lows, Budapest simply can't resist grabbing a slice of the action before that dissipates.

Meanwhile, forint-denominated assets remain under some pressure due to an ongoing cycle of monetary easing by the central bank and the forthcoming end of term for Governor Andras Simor, who has been trying to halt the rate cuts by warning of inflation and other risks.

Following the announcement from the AKK, the forint appreciated 0.2% to €295.25 by 6:18pm in Budapest, reported Bloomberg, after falling as much as 0.9% in intraday trading. Meanwhile, the yield on Hungary's euro notes due in 2020 rose 0.03 percentage points to 4.92%, and yields on forint-denominated notes due in 2022 fell 1 basis point to 6.26% after a 16-basis-point increase on January 11.

Continuing a recent campaign to blame the country's difficulties on an international conspiracy, the Hungarian economy ministry insisted on January 14 that it is a call from Nouriel Roubini doing the current damage. The economist wrote on January 3: "Until Hungary signs a new deal with the IMF we recommend short HUF."

However, most analysts suggest that comments from Economy Minister Gyorgy Matolcsy in an article published on January 10 claiming that Hungary's previous policy of "keeping the forint strong" has "proved catastrophic" may have more to do with it. Matolcsy, credited as the architect of Budapest's "unorthodox" economic policy is widely tipped to replace Simor in March, and has spoken of a strategic alliance between the central bank and government - which has been pushing for "growth" orientated strategies for several months.

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