Hungary Raises $3.25 Billion in First Foreign Bonds Since 2011
Feb. 13 (Bloomberg) -- Hungary raised $3.25 billion in its first sale of foreign bonds in 21 months, returning to the debt market after Prime Minister Viktor Orban abandoned a quest for International Monetary Fund support.
The government sold $2 billion of 10-year notes to yield 345 basis points above U.S. Treasuries and $1.25 billion of five-year securities at a spread of 335 basis points, according to data compiled by Bloomberg. Yields on Hungary’s dollar- denominated bonds due March 2021 fell one basis point, or 0.01 percentage point, to 4.79 percent, the lowest level in two weeks and 330 basis points more than the U.S. benchmark.
Hungary tapped the market after failing to obtain a flexible credit line from the IMF during a year of disputes over central bank independence and Orban’s measures to cut the biggest debt burden in the east of the European Union. The country’s debt agency said Jan. 14 that it plans to issue between 4 billion euros ($5.3 billion) and 4.5 billion euros on international markets in 2013 to help repay 5.1 billion euros in foreign-currency liabilities.
“They’re finally showing they have the ability to access the international bond market,” Esther Law, a London-based emerging-market strategist at Societe Generale SA, said by phone yesterday. “It should be positive for Hungary, also for local debt in terms of relieving pressure on local issuance.”
Yields on Hungary’s five-year forint-denominated bonds fell seven basis points to 5.642 percent yesterday, the lowest level in more than seven years and down from a peak of 10.84 percent in January 2012. The forint strengthened 0.2 percent to 290.11 per euro yesterday, paring earlier losses of as much as 0.7 percent.
Hungary hired BNP Paribas SA, Citigroup Inc., Deutsche Bank AG and Goldman Sachs Group Inc. for the sale, the Debt Management Agency said in an e-mailed statement.
Aviva Investors Ltd. was planning to buy one of the Hungarian bonds for sale as the reported terms were “fair value,” Jeremy Brewin, who helps oversee more than $5 billion of emerging-market fixed-income assets as a portfolio manager, said by phone from London yesterday before the sale was completed.
Hungary, which will hold parliamentary elections next year, doesn’t need a bailout and will tap the international market instead, Orban said in Brussels Jan. 30.
The country’s financing costs tumbled last year as Orban took steps to reduce debt and the U.S. Federal Reserve’s bond buying program boosted demand for higher-yielding assets. Yields on forint notes plunged as the Magyar Nemzeti Bank lowered the benchmark rate by a cumulative 1.5 percentage points since August to 5.5 percent, the lowest level since 2010.
Hungary has benefited “tremendously” from the “global tide” of liquidity and the government’s fiscal commitment, Iryna Ivaschenko, the IMF’s representative in Budapest, told a conference in Budapest yesterday. The country remains “susceptible to sudden changes in investor sentiment,” she said.
The junk-rated nation, which last sold bonds abroad in May 2011, filed a prospectus for the sale to the Securities and Exchange Commission. The government sold a record $3.75 billion of foreign bonds in March 2011 and 1 billion euros two months later. Hungary scrapped plans for a foreign debt sale last year on anticipation of a loan from the IMF.
Turkey, which like Hungary is rated one step below investment grade by Moody’s Investors Service, sold 10-year dollar bonds on Jan. 8 yielding 160 basis points over Treasuries, compared with a 377 basis-point spread at a sale of similar-dated Turkish bonds in February 2012.
Orban has nationalized privately managed pension assets, levied special taxes on banks, telecommunications and energy companies and forced lenders to take losses on foreign-currency loans since taking office in 2010.
The prime minister may use the opportunity created by a successful bond issuance for another “negative” turn in policy, possibly by naming Economy Minister Gyorgy Matolcsy as central bank president, Peter Attard Montalto, a London-based strategist at Nomura Holdings Inc., said by e-mail yesterday.
Matolcsy has been named as the most likely successor to central bank President Andras Simor, who leaves office in March, by media including the Index and vg.hu news websites.
The forint tumbled as much as 3 percent after Matolcsy said in December that the bank should “bravely” use unorthodox methods to bolster the economy. Hungary’s currency rebounded after Matolcsy and the central bank’s rate-setting Monetary Council each urged caution two weeks ago on using “unconventional” monetary tools.
“We need to be on alert” after the bond sale, Montalto said.
Moody’s affirmed Hungary’s credit rating at Ba1 with a negative outlook Feb. 8, saying Orban’s policies have weakened the economy since November 2011, when it cut Hungary to one step below investment grade.
Hungary’s financing needs in 2013 are the largest among its peers in central and eastern Europe, at an estimated 19 percent of gross domestic product, according to Moody’s.
The cost of insuring against default on Hungary’s debt with credit-default swaps fell 4 basis points to 289 points yesterday, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market in London.
“That Hungary was able to pull of such a sale at these yields despite its much more pronounced idiosyncratic risks speaks volumes about how market conditions have changed over the past several months,” Nicholas Spiro, managing director of Spiro Sovereign Strategy Ltd. in London, said by e-mail. “The pendulum of sentiment towards Hungary has swung from paranoia to complacency.”
--With assistance from Allan Lopez in New York, Zoltan Simon in Budapest and Lyubov Pronina in London. Editors: Wojciech Moskwa, Emma O’Brien