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Good Time For Eurobonds As ECB Primes Market

By Steve Wynne-Jones
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Good Time For Eurobonds As ECB Primes Market

It’s a good time to be a “weaker credit” in East Europe weighing a Eurobond sale, thanks to Mario Draghi.

Croatia’s sale of 10-year euro-denominated notes on March 4 shows “there’s pretty big demand for the region and for longer- dated debt,” according to Diana Popescu at the Romanian Finance Ministry, which said last week it’s preparing a Eurobond issue. Bulgaria will meet investors over a planned sale of securities in euros this month, Finance Minister Vladislav Goranov said.

Buoyed by selling 1.5 billion euros ($1.63 billion) of securities at a record-low cost, Croatia said it plans another issue within months to help refinance more expensive debt sold in previous years at better terms. Yields on investment-grade and junk-rated Balkan sovereign bonds have been plunging as the European Central Bank readied its 1.1 trillion-euro quantitative-easing program, slated to start today.

“Thanks to the ECB, it’s a great time to issue, especially for the weaker credits,” Andreas Rein, who manages the equivalent of $500 million at Uniqa Eastern European Debt Fund in Vienna and participated in the Croatian sale, said last Friday. “Croatia’s ratings fit the picture.”

‘Cheap Money’

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The country, rated one level below investment grade by Moody’s Investors Service, placed bonds with a record-low 3 per cent coupon last week, compared with 3.875 per cent for eight- year notes sold in May. It plans to sell more Eurobonds this year to refinance its debt with “cheap money,” Finance Minister Boris Lalovac said on March 5.

Romania is preparing for a Eurobond issue by drafting paperwork and selecting managers to be ready to raise at least 2 billion euros this year with a maturity of at least 10 years when the opportunity arises, according to Popescu. Bulgaria will promote the sale of at least 1.5 billion euros of bonds during a roadshow this month, Goranov said Feb. 27.

Serbia needs to raise an average $1.2 billion a year between 2015 and 2020 to secure gross financing needs, according to its 3-year stand-by loan with the International Monetary Fund approved on Feb. 23. The biggest former Yugoslav republic won’t rush a Eurobond sale, Prime Minister Aleksandar Vucic said at a Feb. 24 news briefing.

‘Only’ Draghi

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The yield on Croatia’s euro-denominated note due in May 2022 fell to a record 2.82 per cent on March 3 and is down 61 basis points this year, while the rate on a Romanian Eurobond due October 2024 fell 67 basis points to 1.86 per cent. The yield on Bulgaria’s securities maturing in September 2024 fell 67 basis points this year, hitting to a record low of 2.24 per cent.

Croatian bonds are “too expensive fundamentally” and the ECB’s monetary stimulus is “the only reason” to buy them, Peter Schottmueller, who helps manage $17 billion as head of emerging-market fixed income at Deka Investment GmbH in Frankfurt, said by e-mail on Friday.

From Monday and for the next 19 months, the ECB led by President Draghi and the euro area’s 19 national central banks will seek to purchase 60 billion euros a month of debt to boost price growth in the region. The yield on Germany’s 10-year bund was 0.40 per cent on Friday.

“It’s a very good time to issue from the issuer point a view,” Stephane Mayor, a money manager at Groupe Edmond de Rothschild in Geneva, with $330 million under management, said by e-mail on March 6. “Even if Croatia’s new issue would be much less attractive in terms of nominal coupon, let’s say 3 per cent, the spread remains interesting and investors have plenty of cash.”

News by Bloomberg, edited by ESM

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