bne -

Slovenia issued $3.5bn worth of dollar-denominated bonds on May 2, with the government pushing through the sale despite having scrapped it two days earlier in the wake of a Moody's downgrade of the sovereign to "junk".

Slovenia issued a 5-year bond at a yield of 4.95% and 10-year bond at 6%. Initial pricing on the five- and ten-year papers was around 5% and 6.12%, Bloomberg reported. BNP Paribas, Deutsche Bank and JP Morgan were the joint lead managers for the issue.

One of the bankers working on the deal told the FT: "Not only has the market shrugged off the Moody's downgrade, but investors are clearly taking the opposite view." Ljubljana had postponed the deal during the bookbuilding process on April 30, just an hour before Moody's announced a two-notch downgrade of Slovenia's credit rating from Baa2 to Ba1. Investors reportedly placed orders for a total of $16bn on May 2, well up on the $12.5bn that was on the order book when it was closed two days earlier.

The Slovenian government hopes that the debt issue will help it avoid following Cyprus to become the latest Eurozone country to require an EU bailout. The country needed to raise at least $3bn to recapitalise its banking sector to the tune of €1.2bn, and balance its fiscal accounts. Speculation remains that the government has underestimated the scale of the problem in the mostly state-owned banks, but the ongoing hunt for yield driven by global liquidity pushed the bond sale through.

"[T]he positive mood toward CEE and the carry trade was exemplified by the issuance of USD international bonds by the Republic of Slovenia. Pricing was attractive enough for Slovenia to issue a total of USD 3.5 bn split into 5-year ($1 bn) and 10-year ($2.5 bn) bonds, with bids apparently amounting to $15 bn," Erste writes in an analyst note.

The Moody's downgrade had cited the "ongoing turmoil" in Slovenia's banking system and the "high likelihood that the sovereign will be required to provide further assistance and capital injections." It also noted a deterioration in Slovenian banks' asset quality in 2012 and 2013. However, Standard & Poor's was far more optimistic as it the new bonds an A- rating, which leaves Slovenia within its investment-grade.