Thursday, January 14, 2010

Romania’s Credit Rating Outlook May Improve, S&P Says

By Adam Brown and Irina Savu

Jan. 13 (Bloomberg) -- Romania may have its credit rating outlook raised as parliament prepares to pass the 2010 budget this week, unlocking a $30 billion bailout loan, Standard & Poor’s said.

“The ratings on Romania could indeed stabilize at the current level,” S&P credit analyst Marko Mrsnik said in a phone interview today. The outlook will improve if “public finances are put on a consolidation path, and if the private sector’s access to external financing improves and pressures on the banking sector subside.”

Lawmakers are working toward a Jan. 15 deadline to approve the 2010 budget with a deficit no wider than 5.9 percent of gross domestic product, which was made a condition to unlock the International Monetary Fund-led loan. The rescue package was frozen after Romania’s government collapsed in October amid infighting, putting in question budget talks.

The European Union’s second-poorest member is rated BB+ at S&P, the highest junk grade, with a negative outlook. Moody’s Investors Service is the only agency that rates Romania investment grade, at Baa3, while Fitch Ratings has a BB+, the highest non-investment rating.

Leu Surges

The leu rose to the strongest in eight months against the euro, strengthening 0.4 percent to 4.1185 per euro as of 2:33 p.m. in Bucharest. It has gained as much as 3 percent this year. The Bucharest Stock Exchange’s main BET indexgained 10 percent this year and rose 0.9 percent today to 5175.53, the highest level since September 2008.

Finance Minister Sebastian Vladescu, speaking in parliament, predicted yesterday that the budget will pass by Jan. 15 and trigger renewed payments from the bailout package.

An IMF delegation will visit Romania next week to review loan conditions and the 2010 budget, which aims to narrow the deficit from an estimated 7.3 percent of GDP in 2009. President Traian Basescu said last month after meeting IMF officials that passing the budget could bring Romania 2.3 billion euros ($3.3 billion) in loan payments as early as February.

Bond Plan

The Balkan nation is looking abroad to finance its shortfall to take advantage of improved investor sentiment after a new government was formed. Romania may sell 1 billion euros in euro- denominated bonds in the first quarter and more later in the year, Vladescu said yesterday.

Romania last sold euro-denominated bonds in June 2008, raising 750 million euros of 10-year debt at a yield 1.7 percentage points above the mid-swap rate, a benchmark for borrowing, Bloomberg data shows. The government postponed its planned sale of as much as 1.5 billion euros in bonds last year as borrowing costs jumped because of political instability.

The leu lost 4.8 percent against the euro last year, the third-worst performer among 25 emerging-market currencies tracked by Bloomberg, as the IMF froze payments to Romania and the ruling coalition of parties disintegrated in feuding.

Basescu won presidential elections on Dec. 6 with 50.3 percent of the vote against 49.7 percent for opposition leader Mircea Geoana. Basescu nominatedEmil Boc, leader of the Democratic Liberal Party, as prime minister. Boc’s government was approved 276 to 135 in a test of support in Parliament on Dec. 23.

Geoana’s Social Democratic Party, the second largest party in Parliament after Boc’s group, has said it wants the IMF to grant the country a wider budget deficit limit for 2010.

The three-week-old government raised its forecast for economic growth this year to 1.5 percent from 1 percent, and the IMF cut its estimate for 2009economic contraction to 7 percent from 8.5 percent.

The pace slowed in the third quarter of last year to 7.1 percent on the year from 8.7 percent in the second quarter, with most of the improvement coming from the manufacturing industry. The National Statistics Institute said today that industrial output rose an annual 3 percent in November, the first gain in a year, as demand picks up from reviving economies in western Europe.

The Banca Nationala a Romaniei cut its main interest rate on Jan. 5 to 7.5 percent from 8 percent, the first reduction since the former government crumbled. The rate remains the EU’s highest.

To contact the reporter on this story: Adam Brown in Bucharest atabrown23@bloomberg.net

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