BlackRock Inc., the world’s biggest investor, is asking Slovenia to provide details of a project to rescue banks as the government delayed pricing of its first long-term debt this year and Moody’s Investors Service lowered the country to junk.
The nation needs to recapitalize its ailing banking industry with as much as 1 billion euros ($1.3 billion) and fund the budget as the government works out details of a so-called bad bank plan to restructure the industry. The country is grappling with its second recession since 2009, with the export-driven economy forecast to contract again this year, according to a Bloomberg survey.
“We need to see the size of the assets that actually will be transferred,” Christopher Allen, a London-based director at BlackRock’s Fundamental Euro Fixed Income team, said yesterday. “We have to understand whether the valuations of those loans are really realistic.”
Moody’s cut Slovenia’s debt rating two steps to Ba1, the highest non-investment grade ranking, citing the ongoing turmoil in the country’s banking system and the “high likelihood” that the sovereign will be required to provide further assistance and capital injections.
Pricing for dollar-denominated bonds was delayed due to a possible credit rating action, the Finance Ministry said in an e-mailed statement before the downgrade. Slovenia “expects the transaction to continue once additional information is available,” it said.
The yield on the government’s existing dollar note due 2022 rose two basis points to 5.66 percent at 7:10 p.m. in Ljubljana. The rate on the notes sold in October peaked at 6.38 percent on March 27 as investors speculated Slovenia will be the next euro country to seek an international bailout after Cyprus.
The cost to protect Slovenia’s government debt against default using credit-default swaps was little changed at 290 basis points today, according to data compiled by Bloomberg.
Investors often ignore ratings, evidenced by the rally in Treasuries after the U.S. lost its top grade at Standard & Poor’s in 2011.
Slovenia was offering five-year and 10-year dollar bonds today, said a person familiar with the matter earlier today who asked not to be identified before the transaction is completed. The five-year notes were being initially offered in the 5 percent area and the longer-maturity debt around 6.125 percent, the person said.
BNP Paribas SA, Deutsche Bank AG and JPMorgan Chase & Co. are arranging the deal after they gauged appetite for a bond sale with a roadshow that ended in London yesterday, the Finance Ministry said in an e-mailed statement.
Prime Minister Alenka Bratusek, whose Cabinet has pledged to push forward with the previous government’s bad-bank project which involved moving as much as 4 billion euros of nonperforming debt out of lenders, has also said that it wants to sell state assets, including a bank, to calm concerns over the country’s rising debt levels.
“Despite the headlines from the new government broadly stating their commitment, we still need the details, hopefully ahead of proceeding with any bond sale,” Allen said in an interview yesterday.
Adrian Russell, a London-based spokesman at BlackRock, declined further comment on the deal today.
Public debt, which was at 54 percent of gross domestic product last year, may rise to about 75 percent after the recapitalization of the banking sector, he said. That compared with the average 90.6 percent debt to GDP ratio for the euro area, according to Eurostat data.
“There are no major imbalances in Slovenia apart from the banking sector,” said Allen. The public debt ratios are “affordable by any means,” he said.
Slovenia’s economy will probably shrink 1.9 percent this year, according to the median of seven estimates in a Bloomberg survey of analysts. Gross domestic product contracted 2.3 percent last year as demand for its goods in Europe ebbed and consumption dropped because of government austerity.