Portugal, shut out of bond markets for more than a year as it relies on aid to stay solvent, is scouting private placements after a debt exchange yesterday, the head of the nation’s debt agency said.
“We will always be attentive to opportunities for doing private placements and, depending on the rate, we will not hesitate to take advantage of good opportunities,” Joao Moreira Rato, chairman of the Lisbon-based debt agency, said in an e-mailed response to questions. “At this moment we’re starting our plan of roadshows through the various geographic areas in which we have potential investors.”
The debt agency has seen more than 30 European investors in recent weeks and plans visits in the U.S., Moreira Rato said. “This process will allow us to have a clearer idea about the potential demand for our bonds,” he said.
Junk-rated Portugal, which aims to regain access to bond markets by September 2013, hasn’t sold bonds since requesting a bailout in April 2011. It has continued to sell Treasury bills.
The debt agency, known as IGCP, exchanged bonds maturing next year for securities due in 2015, reducing its 2013 repayment burden. It bought 3.76 billion euros ($4.89 billion) of bonds due in September 2013. Portugal has to meet the 2013 bond redemption without relying on the European Union-led rescue program, which extends until the middle of 2014.
More than 60 percent of the primary dealers participated in the swap, said Moreira Rato, who became IGCP chairman this year and previously worked at Morgan Stanley, Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc. The IGCP may consider more opportunities to do bond exchanges and it’s not considering buying back debt securities at this moment, he said.
“Portugal’s bond exchange is a step towards regaining bond market access, which is a positive development,” Fitch Ratings said in a statement today. “The weak economic outlook in Portugal, the size of the fiscal adjustment and fragile nature of the euro zone sovereign-debt market means there would need to be a significant improvement in sentiment for it to return to the market in full next year.”
European Central Bank President Mario Draghi on Sept. 6 said bond purchases may be considered for euro-area countries currently under bailout programs, such as Greece, Portugal and Ireland, when they regain bond-market access.
Outright Monetary Transactions “would not apply to countries that are under a full adjustment program until full market access will be obtained,” Draghi said today. “The OMT is not a replacement for lack of primary market access.”
The IGCP yesterday said it plans to sell as much as 5.75 billion euros of bills with maturities of as much as 18 months in auctions during the fourth quarter.
Portuguese debt has this year returned 44 percent, including reinvested interest, the most of 26 markets tracked by indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Irish debt, the second-best performer in the euro region, has handed investors 25 percent, while German bund gains are 3.2 percent in 2012.
Portugal’s debt, which will peak below 124 percent of gross domestic product, “remains sustainable and will be on a firm downward trajectory after 2014,” the International Monetary Fund, the European Commission and the European Central Bank said in a joint statement on Sept. 11.
The IMF in July said it projected Portugal’s debt would peak at about 118.5 percent of GDP in 2013. The projection assumed annual economic growth of 2 percent and medium and long-term borrowing costs of 7 percent when the country regains access to markets in 2013, declining gradually to 5 percent over the next four years.
The government projects GDP will shrink 1 percent in 2013 after a contraction of 3 percent this year. Economic growth has averaged less than 1 percent a year for the past decade, placing Portugal among Europe’s weakest performers.
The country has been given more time to narrow its budget shortfall after tax revenue missed forecasts and the economy heads for a third year of contraction in 2013. Portugal aims to reach a deficit of 5 percent in 2012 instead of the previous goal of 4.5 percent.