Tuesday, December 21, 2010

Romania Plans to Sell Euro Debt in First Quarter

Romania plans to sell euro- denominated bonds in the first quarter, as part of three-year notes program worth 7 billion euros ($9.2 billion), Deputy Finance Minister Bogdan Dragoi said.

The Finance Ministry will pick organizers for the program early next year, after the administration selected a group of legal firms last week to advise it on the sale, Dragoi said in an interview in Bucharest today.

Romania delayed the first sale of the euro-denominated bonds initially scheduled for the fourth quarter until 2011 after resuming the search for a legal adviser following a challenge to the selection process. The country plans to turn to international markets twice next year to help fund a budget deficit of 4.4 percent of gross domestic product agreed with its international lenders, Dragoi said on Nov. 29.

The government is looking for funds on external markets after demand fell for leu-denominated debt in the second half of this year because of a self-imposed yield cap of 7 percent. The ministry dropped the cap last month and has paid a yield of as much as 7.3 percent as an increase in value-added tax has raised expectations that inflation will accelerate.

Bond Program

The government, which turned to the International Monetary Fund and the European Union for a 20 billion-euro bailout last year, wanted to raise at least 1 billion euros in euro- denominated bonds from the first sale in the EMTN program, former Finance MinisterSebastian Vladescu said on Aug. 26.

The sales were held up after law firms challenged the results of an original tender to select the legal adviser. The ministry selected Vienna-based Erste Group Bank AG and Paris- based Societe Generale SA to arrange the sale.

Romania last tapped international markets in March when it sold 1 billion euros of five-year bonds paying a 5 percent coupon in the country’s biggest debt offering. The bonds have dropped since the sale, lifting the yield to 5.308 percentage points today, from 4.91 percentage points when they were sold, Bloomberg data show.

The ministry has sold about 3 billion lei ($920 million) in leu-denominated treasuries of the 4.6 billion lei planned for this month after dropping the 7 percent yield cap. Average yields have ranged from 6.88 percent to 7.17 percent as Dragoi signalled the administration wants to shape a previously flat yield curve.

“It seems like a yield curve is forming for the leu- denominated Treasuries given the good results we’ve seen at the past auctions,” Dragoi said.

To contact the reporters on this story: Andra Timu in Bucharest at atimu@bloomberg.net; Irina Savu in Bucharest at isavu@bloomberg.net.

To contact the editor responsible for this story: James M. Gomez in Prague atjagomez@bloomberg.net

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