Seeking to tap the window of opportunity offered by the US Federal Reserve, Hungary is set to return to the international bond market this year with a dollar-denominated issue to the tune of $2bn or so, according to the economy minister.
The government, last in the international market in February when it sold $3.25bn, wants to sell more foreign debt in 2013, probably in dollars, Economy Minister Mihaly Varga told Bloomberg in an interview published on November 6. "At the time of the February bond sale, the government's intention was to raise $2bn and this is roughly the amount one can expect in a bond issue in the remainder of the year," Varga said. The dollar market is the most liquid and provided "very favorable feedback" in February, he added.
The issue towards the start of the year marked Hungary's return to the international market after an absence of 21 months. That was at first enforced by high yields on the back of the shaky economy and erratic policymaking. Last year, any external issue was prevented by the drawn out dance with the International Monetary Fund over a bailout. That charade was designed to keep the markets off Budapest's back through the crisis.
However, with the US Fed's asset buying programme whipping up huge demand for emerging market debt, Prime Minister Viktor Orban's government decided late in 2012 to turn in its dance card. The $3.25bn issue came just after EM bonds hit their peak, and was followed by a €1.5bn domestic issue via forex bonds. . Yields on the former 2023 paper, which traded at 5.21% after they were first sold, were up to 5.68% on November 6, according to Bloomberg.
While that's a substantial move out, it's likely to be as good as it gets for some time. After flirting through the spring and summer with a plan to "taper" its qualitative easing programme, the Fed has recently hinted its funds won't dry up this year. That offered significant respite on yields, and several CEE issuers have rushed to take advantage, many of them now in pre-funding for 2014 borrowing targets. Poland and Romania sold Eurobonds over the last month, while Serbia is on a roadshow. However, Prague put an end to speculation of a new Eurobond on November 6, as it declared the end of the Czech 2013 borrowing programme.
Varga insists that Hungary's budget financing for this year is ensured with or without an issue, however Budapest has a €1bn note due for repayment in January, while analysts at Commerzbank noted recently that 2013 debt issuance to date is still €1bn short of guidance. Meanwhile, Budapest filed an SEC registration for the issue of up to $5bn in September. The US regulator's requirements meant an issue was not possible until November.
The economy minister's words back up those of officials from state debt agency AKK last month. "[Bond issuance] is still among our plans; we still have two months left until the end of this year," deputy head Laszlo Andras Borbely told reporters on October 29. "AKK is looking to sell Eurobonds this quarter," noted Commerzbank at the time, pointing out that the debt agency is also "actively examining Asian currency bonds (and Turkish lira bonds) as well."
Meanwhile, Hungary's state asset manager MNV announced on November 5 that it is selling up to €900m worth of 2019 bonds, which will be exchangeable for shares in drug maker Richter. The bonds will fund the redemption of an earlier €833m 4.4% exchangeable issue by MNV, which are due next year.
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