Romania raises €3bn in Eurobonds and more to come

Romania raises €3bn in Eurobonds and more to come
By Iulian Ernst in Bucharest March 28, 2019

Romania on March 27 raised €3bn in three Eurobonds with maturities of seven years (€1.15bn), 15 years (€500mn) and 30 years (€1.35bn).

It was the country’s largest combined issue ever and this reflects the government’s need to find financing resources outside the local market where the borrowing cost is rising. 

Romania’s public debt service on the external market is nearly RON20bn, or more than €4bn. More Eurobonds will come later this year, as the budget deficit (planned at nearly €6bn this year) is typically 50% financed from the foreign market.

Not that the borrowing cost on the external markets are lower, but the maturities are longer than on the local market and the debt can be better spread. The longest maturities on the local market are in the range of 160 months.

The yields set in the three issues were set at 2.35% (2.15 percentage points, or pp above mid-swap) for the seven-year maturity, 3.65% (2.85pp above mid-swap) for the 15-year maturity and 4.65% (3.65pp above mid-swap) for the 30-year maturity.

Compared to the spreads above mid-swap accepted in the latest Eurobonds issued in October last year, Romania accepted higher spreads on March 27, indicating higher risk associated with the country, despite S&P maintaining the sovereign rating and outlook. Compared to the indicative yields, illustrating the Treasury’s expectations, the country a paid slightly lower cost, though, for longer-term maturities (15 years and 30 years). 

“The combined order books closed in excess of €8.5bn indicating strong market demand which allowed Romania to tighten the pricing for investors compared to initial guidance levels,” Raiffeisen analysts said in a note. 

“Despite relatively shaky domestic politics leading to the increased fiscal risks Romania - rated BBB-/Baa3 rated by S&P, Fitch, Moody’s - managed to attract solid demand from dedicated EUR accounts looking for a higher yield in investment grade EMs. Our Buy recommendation stays intact despite relatively large supply this time as global central banks’ policies remain conducive for EM bond markets.”

Citi, Erste, ING, JP Morgan and Société Générale were intermediaries for the three Eurobonds issued on March 27.

In its previous Eurobond issue, Romania raised €1.75bn with two Eurobonds issued on October 4, with maturities of 10 years and 20 years. The spread accepted for the 10-year issue was 1.95pp while the spread for the 20-year bond was 2.7pp.