Portugal Sees 2013 Net Borrowing Needs of 11.5 Billion Euros

Portugal said net borrowing needs will be about 11.5 billion euros ($15 billion) in 2013, when it plans to regain access to bond markets after requesting a bailout two years ago.

Net financing from issuing treasury bills will reach 5 billion euros, government debt agency IGCP said today on its website. Portugal auctioned 22 billion euros of bills in 2012, though it hasn’t auctioned bonds since requesting a bailout in April 2011.

“If market conditions allow and demand for Portuguese bonds in the secondary market continues to reveal positive developments, possible primary issuance of existing bond lines will be explored,” the agency said in the statement. The IGCP said it will also continue to explore opportunities to exchange bonds this year and will consider debt buybacks.

Prime Minister Pedro Passos Coelho is battling a deepening recession as he raises taxes to meet the terms of a 78 billion-euro aid plan from the European Union and the International Monetary Fund. Portugal aims to regain access to bond markets by September 2013 and Passos Coelho has said if the country can’t do that for “external reasons,” it would be able to rely on continued support from the IMF and the EU.

Falling Yields

Portuguese bond yields have dropped as the government complies with terms of the bailout. Yields peaked a year ago, when Standard & Poor’s cut Portugal’s credit rating to non-investment grade, or junk, following Fitch Ratings and Moody’s Investors Service.

The difference in yield that investors demand to hold Portugal’s 10-year bonds instead of German bunds has narrowed to 4.6 percentage points from 16 percentage points on Jan. 31, 2012. Portugal’s two-year note yield has dropped to 3.48 percent, while 10-year bonds yield 6.21 percent. The cost of the aid program financing to Portugal is about 3.2 percent, Finance Minister Vitor Gaspar said on Dec. 18.

Portugal has to meet a 5.8 billion-euro September 2013 bond redemption without relying on the EU-led rescue program, which extends until the middle of 2014. The debt agency on Oct. 3 exchanged 3.76 billion euros of securities due in September 2013 for the same value of notes maturing in October 2015, reducing its repayment burden for next year.

Portugal plans to increase the volume of trading in its bonds before resuming sales of longer-maturity debt, Joao Moreira Rato, chairman of the country’s debt agency, said in an Oct. 15 interview.

OMT Terms

European Central Bank President Mario Draghi said on Sept. 6 that debt purchases may be considered for euro-area countries currently under bailout programs, such as Greece, Portugal and Ireland, when they regain bond-market access. The measure, called Outright Monetary Transactions, “would not apply to countries that are under a full-adjustment program until full-market access will be obtained,” Draghi said on Oct. 4. “The OMT is not a replacement” for a lack of primary-market access, he said.

The government forecasts debt will peak at 122.3 percent of gross domestic product in 2014 after reaching 122.2 percent in 2013. The government projects GDP will shrink 1 percent in 2013 after contracting 3 percent in 2012. Economic growth has averaged less than 1 percent a year for the past decade, placing Portugal among Europe’s weakest performers.

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