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Hungary, Romania, Serbia Struggling to Find Buyers for Domestic Bond Sales
Sept. 7 (Bloomberg) --Hungary, Romania and Serbia, which turned to bailouts in 2009, are struggling to find buyers for their debt as spending cuts weaken government power and concerns grow about a stalled recovery.
Serbia and Romania both failed to sell the planned amount of debt on offer this week while Hungary paid more today to sell all of its debt by allowing the yield to rise. Hungary failed to sell the planned amount of 12-month debt on Sept. 2 as concern the central bank might raise interest rates damped investor demand.
The three former communist countries rely on a combined 43 billion euros ($55 million) in loans backed by the International Monetary Fund. Hungary, among the European Union’s most indebted states, Romania, the bloc’s second poorest, and Serbia, which is not an EU member, are trying to bolster their currencies, hold back inflation and raise foreign-direct investment as revenue slumps, with little success, analysts said.
“Obviously, the three countries are sharing the same macro problems, which forced them to all find protection under the IMF ‘financial umbrella’,” said Elisabeth Gruie, an emerging- markets strategist at BNP Paribas in London. “Their level of refinancing needs is far above that of the rest of the region given budget slippages,” while there remain problems with the “political landscape.”
Auction Difficulties
Romania, which has told investors it won’t pay more in yield than 7 percent, accepted 279 million lei ($84 million) of 182-day Treasury bills yesterday, less than the 1 billion lei it had offered. Serbia sold 70 percent of the amount offered at a higher cost and Hungary attracted more investors than planned.
Yields are rising as foreign investors are “fast losing faith,” said Timothy Ash, the head of emerging-market research at Royal Bank of Scotland Group Plc in London. “Hungary still has deep-seated problems, including a high burden of public sector and external debt -- much worse than Romania or Serbia.”
Serbia’s debt sale today coincided with an unexpected rate increase by the National Bank of Serbia, the second in a month. Analysts cited limits banks had available for financing the government as one reason for the failed debt auction today, while the half a percentage point increase in the key rate to 9 percent was a signal yields on government debt are likely to rise further.
‘Resources’
“Resources are not unrestricted,” said Aleksandar Jaredic, the head of treasury at Volksbank in Belgrade.
Yields on Serbia’s short-term debt have risen to 10.7 percent from 10.3 percent since early July, Bloomberg data show. Romanian yields have risen from 6.29 percent in late May and the cost of short-term debt in Hungary advanced to 5.47 percent from 5.38 percent in a month.
In contrast, comparable Czech debt yields inched down over the past month to 0.82 percent from 0.84 percent. Poland’s borrowing costs have dropped this month to 4.67 percent from 4.759 percent in early August.
Unlike other countries in the region, Hungary, Romania and Serbia turned to the IMF for loans at the outset of the global recession, mainly to reassure investors that macro-economic policies will stay on track. All three had to either freeze or cut public wages and pensions to meet fiscal deficit targets.
Extending the lending facilities, which are conditional on prudent fiscal policies, has re-emerged as one of the key issues for investors.
IMF Talks
While Romanian politicians have said they plan to start preliminary talks on extending the loan, lawmakers in Hungary have sent conflicting statements on whether the new loan program was needed, hurting the forint, analysts including Elisabeth Andreew, the chief foreign-currency strategist at Nordea Markets in Copenhagen, said. Serbia, whose program runs through April 2011, may stop short of a new deal less than a year ahead of new general elections, ministers have said.
“Investors in Hungary remain nervous and the authorities still need to reduce the credibility gap following previous mis- speaks” by the government, said Gabriel Sterne, an emerging- market economist with London-based Exotix. “At the same time, Romania is taking its IMF medicine and severely tightening fiscal policy to correct a large budget deficit.”
The three countries are also affected more than others in east Europe from concern about a possible dip back into recession in the region, said Andreew.
“In general, markets are still worried about a new recession and this hits emerging markets and particularly those with poor fundamentals,” Andreew said.
Serbia is suffering from a lack of foreign direct investment after failing to reassure enough investors their money is safe in the Balkan country, whose economy collapsed from the Balkan civil wars of the 1990s.
“I think Serbia is now suffering from the fact that it failed to develop a foreign investor base over the past decade,” Ash said. “Investors do not know the credit well enough, and are simply not willing to put money to work in such an environment.”
To contact the reporter on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net
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