Slovenia Cuts Debt Costs by Switching From Dollar to Euro Bonds

  • Euro zone nation stands to benefit from low borrowing costs
  • Past U.S. dollar debt-euro swap saw 39 million-euro savings

Slovenia plans to buy back as much as $1 billion of its dollar-denominated bonds and sell new debt in euros, benefiting from cheaper borrowing costs in Europe while the Federal Reserve gets ready to tighten policy.

The Adriatic nation is offering to repurchase U.S. dollar notes maturing in October 2022, May 2023, and February 2024 at premiums over equivalent Treasury yields of as much as 155 basis points, according to a regulatory filing on Tuesday. It also announced plans to raise more debt in euros without specifying how much. It has already sold 2.875 billion euros ($3.3 billion) of bonds in 2016.

European Central Bank efforts to boost the euro-zone economy with interest-rate cuts alongside an 80 billion euros per month bond-buying program contrast with the Federal Reserve looking for opportunities to increase borrowing costs. The ECB’s main refinancing rate is zero and the deposit rate is minus 0.4 percent. The U.S. Federal Funds Target Rate upper bound stands at 0.5 percent and a number of Fed officials have indicated this may rise before the year-end.

“The reason for the transaction is obvious as Slovenia can save interest costs because refinancing U.S. dollar debt into euros is cheaper, thanks to ECB buying euro-region countries’ sovereign bonds,” said Lutz Roehmeyer, a money manager at Landesbank Berlin Investment GmbH. “Timing is also OK, because spreads are tight and a lot of cash is there searching for yields.” Roehmeyer said he does not hold any of the notes included in Slovenia’s buyback.

Barclays Plc, Deutsche Bank AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. are managing the transactions. Slovenia made net savings of about 39 million euros in an earlier buyback of dollar debt in May, after which it issued new bonds denominated in euros, former Finance Minister Dusan Mramor said. The ministry declined to comment when contacted by Bloomberg on Tuesday.

Slovenia is offering to pay as much as 155 basis points over Treasury yields for its 2022 dollar notes. It will buy back 2023 notes at a maximum spread of 125 basis points and securities maturing in 2024 at a 135 basis-point premium. The offer on the dollar notes expires on Aug. 30, according to the statement.

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