“The fact that Romania’s CDS has remained around 180 basis points amid good liquidity on international markets creates favorable circumstances for a new eurobond issue,” says Eugen Sinca, chief analyst of BCR.
How the loan arrangement with the International Monetary Fund (IMF) will be concluded is “cloudy”, with several crucial commitments that Romania made to the Fund being left hanging (for instance the privatization of railway freight transporter CFR Marfa and the reduction of arrears).
All the more so, this eurobond issue is an opportunity for Romania to consolidate its forex reserve, estimated by analysts at EUR5.5 billion.
Through this new issue, the Finance Ministry could borrow EUR1-EUR1.5 billion at yields of under 4% for a 10-year period after in February it had sold bonds of $1.5 billion with a ten-year maturity at a yield of 4.5%.
Four major investment banks, Citi, HSBC, Deutsche Bank and Societe Generale are set to manage the new eurobond issue as part of the program to get financing from the international market, according to banking sources.
“This eurobond issue needs to be launched as soon as possible because the yields requested by investors could rise amid prospects of lower liquidity being injected by FED through the quantitative easing program,” says Melania Hancila, chief economist of Volksbank. She explains that if the Federal Reserve pumped less liquidity into the market, this would put upward pressure on the price of eurobonds as well.
One should not rule out the possibility of Romania not sealing a new arrangement with the IMF, which would boost the risk premiums that investors request from Romania, but Hancila says this scenario is very unlikely and that the Government seems decided to renew the arrangement with the Monetary Fund.
The country risk premium reflected in the CDS (the cost of insuring against the default risk – which influences the cost of borrowing from external markets – has fallen below 200 basis points in the last few months.
Since the beginning of March, Romanian government bonds were included in a JP Morgan index, which raised Romania’s visibility on external markets and heightened the interest of foreign investors.
Last year the Finance Ministry sold government bonds worth EUR2.25 billion and $2.25 billion, setting a record in terms of external private financing.
Mihai Patrulescu, senior economist at UniCredit Tiriac Bank, says the Finance Ministry already has significant forex reserves, of around EUR5.5 billion, so it is under no pressure to access external financing. So the eurobond issue could be preferred because of the favorable market conditions and because it helps improve the structure of the public debt.
(English version by Daniela Stoican)