Slovenia, the first post-communist nation to adopt the euro, plans to sell it first benchmark bond this year as the European Central Bank loans to the banking industry lowered its borrowing costs.
Slovenia hired BNP Paribas SA, HSBC Holdings Plc, JPMorgan Chase & Co., Societe Generale SA and UniCredit SpA to organize presentations with investors in Europe, the Finance Ministry in the capital Ljubljana said in an e-mailed response to questions.
“The transaction will be carried out in the near future, depending on market conditions,” the ministry said.
Slovenia wants to tap international investors after yields on its benchmark bond have declined since December, when the ECB started offering three-year loans to the banking industry. Slovenia had its rating cut by two levels since September to A+ by Standard & Poor’s, the fifth highest investment grade because of an inadequate response of European leaders to the sovereign debt crisis and weakness in the Slovenian economy and the banking industry.
Slovenia may sell as much as 2.8 billion euros ($3.7 billion) in debt this year, Bostjan Plesec, the chief of the debt management agency, said in a January interview.
“The timing is OK and Slovenia will probably be seeking to sell 1 billion euros to 1.5 billion euros,” Marko Rozman, head of trading of the investment and analytical department at Dezelna Banka Slovenije d.d. in Ljubljana, said in an e-mail. “The yield, if they opt for five-year notes, is likely to be in the range of 220 basis points to 250 basis points above mid-swaps.”
Borrowing Costs Surge
Slovenia’s borrowing costs surged in November past 7 percent on its benchmark bond because the debt crisis was threatening Italy, its neighbor to the west and its third-biggest trading partner after Germany and Austria. The yield on the notes maturing in January 2021 has since dropped and was trading at 5.147 percent at 1:05 p.m. in Ljubljana, according to mid-pricing data compiled by Bloomberg.
Prime Minister Janez Jansa’s government, which took power in February after a snap vote in December, wants to allay investors’ concern after public debt has more than doubled since the 2007 adoption of the euro.
The administration pledged to cut spending by 800 million euros by year’s end and lower the budget gap to 3 percent of gross domestic product, according to Finance Minister Janez Sustersic.
The Alpine nation initiated a legislative process to put the goal of a balanced budget into the constitution after European leaders agreed on tighter spending with the adoption of the European Union fiscal treaty.
Slovenia’s public debt rose to 47.4 percent of GDP by the end of last year from 23 percent in 2007, Sustersic has said.