Hungary’s Government Debt Management Agency AKK announced on September 26 that it plans to issue 10-year Eurobonds to refinance high-interest dollar bonds maturing soon. The agency mandated BNP Paribas, Citi, Deutsche Bank and ING to carry out the transaction.
This would be the first such transaction in the history of the debt manager, which expects significant interest savings for Hungary. The positive market environment and the country's improving assessment has resulted in the drop of bond yields to negative territory, it added.
Investors will have seven days to sell their USD bonds, after which the AKK will offer the euro bonds "depending on market circumstances", it said. The transaction will not alter the size or the proportion of Hungaryʼs FX state debt. The debt manager did not specify which dollar bonds it intends to repurchase.
Hungary is returning to the euro market for the first time in six years. The last euro-denominated sovereign issue was a €1bn seven-year bond issued with a 6% coupon in May 2011.
In the last few years, the government made it a priority to reduce the share of foreign currency debt within Hungary's total debt to reduce exposure to global market fluctuations and to increase the average maturity of debt instruments. The share of non-forint debt fell from 60% in 2010 to around 25% in 2017.
With real interest rates of 2-3% on local debt, Hungarian retail investors have been accumulating forint bonds in big volumes. Since the start of the year, retail investors increased their holdings of Hungarian debt instruments by HUF1.3tn, compared with with AKK’s full-year sales target of HUF700bn. At the end of August, households held HUF6.49tn of forint-bonds and the share of long-maturity bonds was rising.
Despite the dominance of forint-debt issuance, Hungary has concentrated on raising funds in renminbi as part of the governments ambitious plans to strengthen ties with China.
In July, it sold successfully sold CYN1bn (€130mn) in 3-year yuan-denominated bonds on China's interbank bond market and before that in April 2016 it went ahead with a CNY1bn 3-year dim sum bond issue, the first by a CEE country.
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