Debt hungry sovereign faces rocky road ahead

Published: November 3, 2020

The Romanian sovereign has hit international bond markets three times this year to raise more than €12bn-equivalent, and there has been renewed M&A interest from international companies looking at the country’s corporate sector. However, analysts are still warning that it will take until at least 2022 for GDP to return to pre coronavirus pandemic levels.

Romania, rated Baa2/BBB-/BBB-, sold a €3bn bond in January split between a €1.4bn 2% 2032 tranche and a €1.6bn 2050 tranche. 

Then the Covid-19 pandemic hit and coupons rose sharply, as can be seen in the sovereign’s subsequent market outings. When it was in the market in May, two months after the pandemic began, the sovereign raised a €1.3bn six-year trade with a 2.75% coupon, which was half the maturity of its shortest tranche in January and carried a 75bp higher coupon. The borrower also raised a €2bn 10-year tranche with a 3.624% coupon.

Finally, Romania printed $1.3bn 3% 2031 and $2bn 4% 2051 notes in July. 

Despite the hefty capital markets exposure, some corners of the market expect to see the sovereign borrow even more to make up for the shortfall in its budgets.

“Romanian authorities succeeded to borrow large amounts of money from both the local and the external market year-to-date but financing this year’s very large public deficit requires large borrowings in Q4 too,” said Ionut Dumitru, a financial analyst at Raiffeisen Bank International (RBI). “So, we think that another Eurobond issuance in the coming period could be needed.”

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