Hungary to return to international debt markets with dim sum bond

By bne IntelliNews April 13, 2016

Hungary has mandated the Bank of China to arrange a dim sum bond of benchmark size, state debt manager AKK announced on April 13.

Hungary’s dim sum bond - issued outside China but denominated in yuan - would be the first such issue from Central Europe. Budapest has been mulling an issue for some months. The move is part of a concerted effort in recent years to cement ties with Beijing as part of a push to open up markets to the east, and also to tap China's massive reserves for raised investment, as it races others in Central and Eastern Europe.

Hungary announced in January that it plans to return to the international bond market in early 2016 after a hiatus of close to two years, and that it was preparing both a Eurobond and a dim sum bond. Bank of China arranged meetings with potential investors interested in the remnibi issue. The issuance did not happen at the time, but AKK insisted it was still planned.

On April 13, the debt manager said the pricing and timing on the issuance of the bond will depend on market conditions. It is expected that a three-year bond will be opened on April 14, unnamed sources told newswires.

Overall, Hungary was due to repay €4.8bn worth of foreign currency debt in 2016, more than double the €2.35bn expiring in 2015. The total includes €1.5bn due to the European Commission - which Hungary already repaid in April - and €3.2bn worth of FX bonds.

When presenting the country’s financing plans for this year, AKK said it will seek to raise €1bn in FX bonds sales this year, part of it denominated in the Chinese currency. Hungary was last in the international market in 2014, when it issued $3bn in USD notes. Before that, it had been shut out for some years following its fall into junk with all three rating agencies and a drawn out squabble with the IMF in 2011/12.

However, as part of the 'self financing' drive, which has done much to restructure Hungarian debt to reduce the ratio of external debt in a total that has hovered just below 80% of GDP for some years, AKK plans to refinance most forex debt from HUF issuances. 

Poland has also suggested it is set to issue dim sum bonds. However, Warsaw has held fire for the meantime as China's economic slowdown has hit bond markets in the country. Poland instead went into the market on April 13 by tapping a 20-year Eurobond.

The move is in line with Hungary’s recent efforts to strengthen ties with China. As Beijing continues to cement its presence in Eastern Europe from the Baltic states in the north to the Balkans in the south, Foreign Minister Szijjarto called Hungary the flagship of Chinese-Central European cooperation. Last November, Hungarian companies signed deals worth nearly $2bn with Chinese businesses. Budapest has handed a €1.5bn high-speed railway deal to a consortium led by China Railway Group (CRG).

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