Slovenia sold 1.5 billion euros ($2 billion) of bonds in a private placement, skirting scrutiny on the open market before stress tests reveal how much it must pay to bail out the mostly state-owned banking system.
The Adriatic euro member sold the three-year notes at 465 basis points, or 4.65 percentage points, above similar maturity German bunds, according to data compiled by Bloomberg. The lead manager was JPMorgan Chase & Co. (JPM)
Slovenia decided to do it privately “because it could be conducted more quickly and efficiently, and without the need to explain the as-yet unexplainable, such as the cost of fixing the banking system,” Richard Segal, head of international credit strategy at Jefferies Group Inc. in London, said in an e-mail today. “If in a public deal they could not borrow for longer than three years, that could have been a bad sign.”
Prime Minister Alenka Bratusek’s government pushed through a 2014-2015 budget today. It’s struggling to reassure investors who are demanding more in return for credit after two recessions in four years drove bad debt in state-run banks to an amount equal to more than a fifth of annual economic output.
The yield on Slovenia’s dollar-denominated bonds maturing in 2022 declined 23 basis points, or 0.23 percentage point, from yesterday to 5.91 percent at 4:28 p.m. in Ljubljana, the lowest level on a closing basis since May 30, data compiled by Bloomberg showed.
JPMorgan Chase & Co. spokeswoman Elizabeth Seymour declined to comment on the deal. The Finance Ministry in Ljubljana confirmed the details of the transaction in an e-mailed statement today.
The cabinet is awaiting the results of asset quality and stress tests due next month. Fitch Ratings says fixing the banks will cost 4.6 billion euros, almost four times the 1.2 billion euros the government has set aside. Biggest lender Nova Ljubljanska Banka said two days ago it alone will transfer 2 billion euros to a bad bank starting next month.
Today’s deal “is a definite positive, though they clearly had to pay up to get it away,” Peter Attard Montalto, an economist at Nomura Plc in London, said in an e-mail. “It tides them over in the fourth quarter, though clearly that depends on how big the recap need is. Unfortunately it probably lessens the urgency for structural reforms, privatizations and the budget implementation.”
If results show the amount earmarked for bank aid isn’t enough, Slovenia has to decide whether to get additional funding on the capital market or ask the EU for help, central bank Governor Bostjan Jazbec said today, according to the Austrian Press Agency.
The European Commission, the EU’s executive arm in Brussels, said today Slovenia is on track to deliver targets aimed at avoiding a bailout. The country has taken “effective” action on its fiscal deficit this year and needs to“rigorously” implement the 2014 plan, the commission said in its first-ever evaluation of national budgets.
Slovenia’s next big debt obligation is a 1.5 billion euro bond that will mature on April 2, according to data compiled by Bloomberg. It last sold a combined $3.5 billion of debt on the U.S. market in May, its first offering this year. The government sold $2.5 billion of 10-year dollar notes to yield 6 percent, according to data compiled by Bloomberg. It also issued $1 billion in five-year bonds to yield 4.95 percent.
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