Slovakia set for samurai

By bne IntelliNews November 19, 2012

bne -

Slovakia plans to issue yen-denominated bonds in the first half of 2013 as it continues a strategy to diversify its investor base, a government official said on November 16.

"The strategy is to diversify our sources of funding," Deputy Finance Minister Vazil Hudak said in interview with Bloomberg. "We discussed a potential issue in Tokyo last month and the response was good. So we will try a Samurai bond."

Bratislava is looking at an issue equal to around €400m (JPY41bn) in samurai bonds, probably in May, after the end of the fiscal year in Japan, Hudak said. The move would represent the first borrowing in yen for Slovakia since it raised JPY15bn for three years in 1998.

As bne reported in October, CEE states, which have been watching their yields drop throughout the year, have been eyeing the Japanese market for some time as they look to diversify their funding base, while investors hunt for yield outside their traditional markets in Western Europe. The Czech Republic and Latvia held meetings with investors in Tokyo last month, while Croatia is rumoured to be looking too.

"There is very limited stuff to buy in yen at the moment. Spreads of well-known frequent borrowers in US dollars and euros have tightened and these levels don't work in yen. So investors have to look outside of their previous comfort zone and look to expand it," an unnamed Tokyo-based banker told IFR in October. "In that sense, Eastern Europe makes sense. There were a lot of one-on-one meetings set by sovereigns like Czech and Latvia during the IMF/World Bank week."

Slovakia will be joining neighbour Poland, which carried out its second samurai issue of the year in early November. Following up a JPY25bn of five year paper in in May at a yield of 1.49%, the ministry of finance sold JPY66bn (€639m) in five and 15-year paper at yields of 1.05% and 2.5% respectively. That second issue was doubled at the last minute on the back of strong demand. A Czech government official said in October that an opportunistic deal could make sense for the sovereign's overall funding mix: "There is a lot of money looking for a home in yen, and these sovereigns offer yield"

For Slovakia, an issue in yen continues its diversification strategy as it moves to fulfill 2013 borrowing needs of €8bn-9bn. In the last fortnight, Bratislava issued €1.35bn in euro-denominated debt, but before that it had spent the year diversifying its investor base as it filled its 2012 target via issues in US dollars, Swiss francs and Czech crowns.

In addition to the planned Samurai, Slovakia also said that it plans to issue retail bonds for domestic investors. Hudak added, without elaborating, that the country also expects "several" syndicated sales.

However, the finance ministry official points out that a newly adopted constitutional law, which calls for automatic sanctions should debt exceed 53% of GDP, is limiting the government's ability to take advantage of declining yields and borrow more to pre-finance. The yield on the benchmark 4% 2020 euro-denominated note fell to 2.349% on November 15 from 5.458% at the start of 2012.

Ardal, the state debt-management agency, will probably accelerate bond buybacks to ensure state debt won't exceed this threshold as of end-2012, Hudak said. "We don't plan any significant issuance in the near future," he said. "We have relatively narrow room for maneuver because of the debt-ceiling legislation."

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