Friday, November 18, 2011

Romania Holds Off on Dollar-Bond Sale on Surging Costs

Romania will hold off on plans to sell dollar-denominated bonds until market conditions improve, after contagion concern from the euro-area debt crisis sent borrowing costs to record highs across Europe.

The eastern European country has held debt-sale meetings in Londonand across the U.S. in the past week with investors who have shown a strong interest in the planned bond sale, Bogdan Dragoi said in a phone interview today. The dollar bond sale would be the first under a three-year medium-term notes program valued at 7 billion euros ($9.5 billion).

“They were probably not happy about the yield expectations they’ve got from investors now,” said Gyula Toth, chief strategist for central and eastern Europe, Middle East and Africa at Unicredit SpA in Vienna. “They might have better chances in the near future. I think Romania’s bonds are still preferred to its regional peers.”

Borrowing costs for Spain, Italy and France surged to euro- era records, fueling concern the region’s debt crisis is deepening and prompting eastern European countries such as the Czech Republic and Romania to put their bond sale plans on hold.

Romania seeks to raise as much as $2 billion in dollar- denominated bonds in this year’s second international sale, depending on market conditions, after it stopped relying on an international bailout earlier this year. The Czech Republic said on Oct. 26 it may delay plans to sell Eurobonds this year because international markets are volatile, while budget cuts and low inflation help borrowing in the local currency.

“Our roadshow yielded good results, as investors have shown strong interest in Romania, and we’re now waiting for the best moment to issue the dollar bonds,” Dragoi said. “We’re waiting for the markets to calm down and we are ready to issue immediately once that happens.”
Regional Yields

The yield on Italy’s benchmark 10-year bond fell 19 basis points to 6.79 percent after touching a high of 7.15 percent.

In France, the extra yield, or spread, investors receive for holding 10-year French debt instead of benchmark German bunds reached 2 percentage points for the first time in the shared currency’s history as the country sold 6.98 billion euros of notes. Spain sold today 3.56 billion euros of new 10-year bonds at an average yield of 6.975 percent, higher than the 5.4 percent it paid on Oct. 20, as demand dropped.

The cost of insuring against a default by Romania has increased 7 basis points to 450 basis points, 160 basis points less than credit-default swaps for Hungary, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

The yield on Romania’s Eurobonds due 2018 rose to 6.271 percent today, the highest level in almost a month, from 6.24 percent yesterday, according to data compiled by Bloomberg at 5:33 p.m. in Bucharest today.

Romania stopped relying on a 20 billion-euro bailout from the International Monetary Fund and the European Union in March and cut state wages and raised taxes to narrow its budget deficit.
IMF Reviews

The country has so far completed three quarterly reviews after meeting pledges to the international lenders. Romania doesn’t plan to draw any funds from the precautionary accord, which will be held in Washington D.C. for emergency needs.

Romania sold its first bonds under the medium-term note program in June when it raised 1.5 billion euros of five-year bonds in its biggest offering of debt to international investors.

Citigroup Inc. (C), Deutsche Bank AG (DBK) and HSBC Holdings Plc (HSBA) are managers of the planned dollar-bond sale.

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

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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