Slovakia enjoys strong demand for debut dollar bond

By bne IntelliNews May 11, 2012

bne -

With the help of macroeconomic indicators that are buzzing in the first quarter, Slovakia bucked dwindling risk appetite on May 10 to provoke strong demand for its first ever dollar-denominated debt. The country says that its recent series of issues in varying currencies is now over for the year as it nears its borrowing target.

Slovakia sold $1.5bn of 10-year benchmark bonds priced at the tight end guidance of 262.5-275 basis points over US Treasuries, reports Reuters. Demand reached $3.0bn, according to Daniel Bytcanek, head of the country's Debt and Liquidity Management Agency (Ardal), who told the newswire: "We are happy how it went, especially when you take into account that the market situation slightly worsened over the past few days."

Global sentiment, particularly towards the periphery (or perceived periphery in Slovakia's case) of the Eurozone, has flagged this week following the rise of political and banking risk in Greece and Spain respectively, on top of the French presidential election.

Whilst a coupon of 4.375% illustrates Slovakia is unable to escape that, despite having seen indicators such as industrial production - its economic lynchpin - boom in the first quarter of the year, it has also seen its fortunes improve markedly in the last three months. The premium of Slovak benchmark eight-year debt to German Bunds is around 245 basis points currently, compared with a peak of 405 bps in December.

However, the country still has to contend with the pressure on the euro, which is precisely the kind of risk Bratislava had in mind when it launched series of differently-denominated issues early in 2012. Successful debt sales in Czech crowns and Swiss francs recently were also aimed at diversifying the country's investor base. "We're happy with this transaction because we entered a completely new market for us," Bytcanek told Dow Jones.

With Slovakia having front-loaded its borrowing for the year however, the strategy is played out for now, he says. "Further non-euro issues are very unlikely this year," the Ardal chief told Reuters. "We could offer a new euro benchmark bond issue later in the autumn, subject to market conditions, but we are in no rush and can easily make it into the next year without it."

To date, Slovakia has issued close to 88% of the year's €7.5bn borrowing plan after the dollar bond sale. The country will auction 2016 floating-rate coupon state bonds and 2017 fixed-rate coupon state bonds in two domestic sales on May 14.

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