Monday, January 30, 2012

Romania Frontloads Debt Sales to Avert Risk Appetite Change

By Andra Timu and Irina Savu

Jan. 26 (Bloomberg) -- Romania sold a record amount of leu- denominated debt in January at lower yields as it seeks to protect its finances from a possible worsening of the European sovereign-debt crisis.

The Balkan nation sold 9.94 billion lei ($3 billion) in Treasury bonds and bills on the domestic market, more than double the planned amount and the most since April 2005, according to data from the Bucharest-based central bank. The yield for six-month Treasury bills dropped to 5.87 percent on Jan. 23 from a record 11 percent in July 2009 after inflation was the slowest in two decades in December at 3.14 percent.

“It makes sense for Romania to frontload issuance as risk appetite seems to have stabilized for the moment,” Neil Shearing, senior emerging-markets analyst at Capital Economics Ltd. in London, said by phone on Jan. 24. “If risk appetite changes, which we think it will, Romania could be trapped in the turmoil because of its banks’ high dependency on funding from their international parents.”

Romania, which needs to borrow about 70 billion lei this year to fund a budget deficit and pay maturing debt ahead of elections, joined Poland and other European countries in selling more debt than planned in the first month of the year to benefit from a lull in Europe’s debt crisis. The Balkan nation needs to refinance 52.4 billion lei in maturing debt in 2012.

Polish Sales

The Polish government is also cushioning its finances against another bout of European market turmoil by selling a record amount of zloty bonds this month as well. Poland sold 6.75 billion zloty ($2 billion) of two-year securities on Jan. 19 at a yield of 4.724 percent, taking its domestic bond sales to a record of 17.1 billion zloty in January.

Yields on existing two-year notes fell to 4.72 percent, the lowest since Nov. 14, while the extra yield over similar- maturity German bunds fell to a one-month low of 449 basis points, data compiled by Bloomberg show.

With twice as much debt as Russia, Poland needs to repay a record $38 billion this year and plans to meet more than a quarter of its funding needs by the end of January, the Finance Ministry said on Jan. 14. European Central Bank loans have eased investor concern for the stability of euro-area lenders, which own 59 percent of Polish banking assets.

Romania plans to sell as much as 16 billion lei of leu- denominated debt in the first quarter, the Finance Ministry said on Dec. 23. The auction calendar for February will be published by the end of the month. Borrowing costs will probably continue to decline as inflation may slow further, Deputy Finance Minister Bogdan Dragoi said on Dec. 27.

“As a result of the crisis, it’s not going to be easy for Romania to find cheap money and that’s why reforms in the country are so important,” Mark Mobius, who manages $45 billion at Templeton Emerging Markets Group, said yesterday. “There are probably some bargains around and where these bonds will be worth much more going forward.”

‘Very Interested’

The Finance Ministry also wants to extend debt maturities and sell its first 15-year leu-denominated bonds on the domestic market in February as pension funds “are very interested in long-term debt,” according to Dragoi.

The leu, the third worst performer among the 25 emerging- market currencies tracked by Bloomberg this year, strengthen 0.14 percent to 4.3390 per euro at 11:09 a.m. in Bucharest trading today. The unit has lost 0.3 percent since the start of the year.

Policy makers, who cut the main interest rate twice in the past three months by a cumulative half-point to 5.75 percent, may have room to reduce the benchmark rate further, central bank Deputy Governor Cristian Popa said on Jan. 17.

Romania also plans to raise as much as 2.5 billion euros ($3 billion) in bonds from international markets this year as part of a 7 billion-euro medium-term note program over three years. The first sale of dollar-denominated bonds may come this year depending on market conditions, according to Dragoi.

‘Not a Surprise’

“It’s obvious that Romania doesn’t want to issue dollar bonds in the current conditions and it’s not a surprise that they are relying more on the local market,” Daniel Hewitt, a London-based analyst at Barclays Plc said by phone.

The country stopped relying on bailout funds from the International Monetary Fund and the European Union in March last year and secured a 5 billion-euro precautionary accord with the lenders. The government doesn’t plan to draw from the credit.

The Bucharest-based administration pledged to reduce the budget deficit to as low as 1.9 percent of gross domestic product this year from 4.4 percent in 2011.

The cost of insuring against a default by Romania has declined about 35 basis points this year to 413 basis points today, 173 basis points less than credit-default swaps for Hungary and 170 points more than Poland, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

--Editors: Alan Crosby, Douglas Lytle

To contact the reporters on this story: Andra Timu in Bucharest at; Irina Savu in Bucharest at

To contact the editor responsible for this story: James M. Gomez at

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