Eximbank Cuts Bond Yield in Boon for Hungary Debt Return

Magyar Export-Import Bank Zrt., a state-owned Hungarian lender, lowered the yield on its $500 million dollar bonds after getting four times as much in bids, boosting the government’s prospects for a Eurobond sale.

Eximbank, as the lender is known, cut the yield on the five-year notes to 5.75 percent from a previous guidance of 5.875 percent after receiving bids for $2.2 billion, according to an e-mailed statement today. The yield on Hungary’s 2019 euro bonds fell two basis points, or 0.02 percentage point, to a one-month low of 5.415 percent at 4 p.m. in Budapest.

Hungary, which hasn’t sold debt denominated in foreign currencies since May 2011 and whose aid negotiations with the International Monetary Fund have been deadlocked more than a year, may issue notes in euros in 2013 depending on “market conditions,” the Economy Ministry said by e-mail yesterday. A bond sale by the government is independent of Eximbank, the ministry said.

“I see this as a sign of Hungary trying to test the international market,” Esther Law, a London-based strategist at Societe Generale SA, wrote by e-mail today. “It does give the impression that they may issue Eurobonds before the IMF deal.”

Reference Point

The Eximbank debt sale, for which Deutsche Bank AG and Jefferies International arranged investor meetings, “may be a point of reference when the government decides on a foreign-currency bond sale,” Gergely Tardos and Levente Papa, Budapest-based analysts at OTP Bank Nyrt., Hungary’s largest lender, wrote in a research report today.

“The demand for Eximbank’s bond issuance reflects investors’ confidence,” the Economy Ministry said in an e-mailed statement today, adding that the funds from the bank’s debt will help improve the competitiveness of exporters.

This week’s sale, the first step in a 2 billion-euro ($2.6 billion) medium-term note program, was the first public benchmark deal on the international market for Eximbank, said the lender, which had total assets of 196 billion forint ($898 million) at the end of 2011.

In a sign of improving sentiment, Hungary issued 75 billion forint in 12-month Treasury bills today, the highest amount sold at an auction of that maturity and 50 percent more than planned, as borrowing costs fell to the lowest in 15 months.

Eximbank Example

The government, which tends to issue foreign-currency bonds with maturities longer than five years, may be able to sell dollar notes at yields around 5 percent based on the Eximbank sale, Gabor Orban, who helps manage $2.5 billion at Aegon Fund Management in Budapest, said in e-mailed comments.

Yields on the government’s dollar-denominated bonds due in 2021, and issued in March 2011, when Hungary last sold dollar bonds, were little changed at 4.889 percent.

The Debt Management Agency, which had shelved plans to sell 4 billion euros in Eurobonds in 2012, waded into foreign-currency financing with a plan to issue 200 million euros in inflation-linked, three-year notes to Hungarian households and other investors. The agency sold 104 million euros of notes at a coupon of 5.1 percent, AKK said on Dec. 4.

Standard & Poor’s last month cut Hungary’s long-term sovereign ratings one level to BB, two steps below investment grade, citing government policies that are eroding growth prospects, according to a Nov. 23 statement. Fitch Ratings and Moody’s Investors Service rate Hungary one step below investment grade. Both have a negative outlook.

IMF Negotiations

Prime Minister Viktor Orban nationalized assets of private pension funds and pushed banks to swallow losses on their clients’ foreign-currency mortgages last year. This helped trigger the downgrade of Hungary’s sovereign credit to junk and forced the government to request international aid.

Orban’s commitment to cut the budget deficit, coupled with investors’ growing appetite for higher-yielding, riskier assets, stoked by bond buying from the U.S. Federal Reserve and the European Central Bank, has helped drive down Hungary’s borrowing costs and strengthened the forint this year.

The forint weakened 0.3 percent to 283.62 per euro today. The currency has gained 11 percent against the euro in 2012, the most among more than 100 currencies tracked by Bloomberg.

While Hungary can finance its budget deficit from the market next year, the Cabinet should continue aid talks with the IMF, Mihaly Varga, the government’s chief aid negotiator, said in Budapest today.

“A foreign-currency bond from the government is a bigger deal than issuance from Eximbank, but it seems no IMF agreement would be needed for it amid such good sentiment,” Andras Sovany, a Budapest-based fixed income trader at ING Groep NV, wrote by e-mail today.

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