Published: August 18, 2009
On July 17, Hungary has successfully sold its first debt to foreign investors since the country had to be bailed out by the IMF last year. Investors ordered €2.9bn of securities, nearly six times the €500mn the government initially planned to raise, said finance minister Peter Oszko.
Citigroup and ING bank were lead managers on the deal. The transaction attracted a significant demand with more than 190 investors.
Padhraic Garvey, head of developed markets debt and rates strategy, ING Financial Markets, thinks that risk appetite has improved in recent months and that investors are more confident about buying into spread products. “The central driver has been reduced systemic risk as the outlook for banks has become less grim,” Garvey tells emeafinance.
The government debt management agency in Budapest said in a statement on July 16: “The proceeds will be used for general financing purposes”. Hungary has been hit hard by the global crisis and was the first European nation to receive financial aid from the EU and the IMF.
The offered yield on the €1bn bond was 6.75% on a five-year debt, more than the 5.9% on existing Eurobonds due May 2014. Hungary was able to borrow at a rate of 3.5% and 4% at its bond offering last year.
Garvey says that rates are higher for lower rate issuers. “Higher domestic rates in Hungary have been influenced by the weaker forint, and indeed subsequent cuts have coincided with a firmer forint. The dominant factor has been higher spreads versus core Eurozone issuers,” Garvey explains. Hungary priced its bonds to yield 395 basis points over mid-swaps.
Prime minister Gordon Bajnai has pledged to cut spending by Ft1.3tr (US$6.7bn) within two years and raise taxes, helping to meet the terms on €20bn of international loans.
“Hungary has regained its credibility,” Oszko said. “If the current market conditions remain, the country may be able to finance itself from the market and may not need to extend the IMF loan.” Hungary’s IMF agreement expires next March.