Slovenia Taps Banks for Foreign Bond Investor MeetingsBoris Cerni and Hannah Benjamin
Slovenia picked banks to organize international bond investor meetings, a day after scooping up twice the targeted amount in a domestic debt sale and easing pressure on the country to ask for an international bailout.
The government hired BNP Paribas SA, Deutsche Bank AG and JPMorgan Chase & Co. to arrange meetings for a “non-deal roadshow” starting April 22, Irena Ferkulj, a spokeswoman at the Finance Ministry, said in an e-mailed statement today. Slovenia’s bond yields increased today after a record drop following yesterday’s 1.1 billion euros ($1.4 billion) sale of bills, compared with the ministry’s 500 million-euro target.
“The government is clearly feeling more confident about borrowing from the international market on the back of its successful local auction, which let the government off the hook,” Abbas Ameli-Renani, an economist at Royal Bank of Scotland Group Plc in London, said in an e-mail. “While attempting to tap the international market is in line with what we have been expecting, it’s coming sooner than anticipated.”
Prime Minister Alenka Bratusek’s month-old government is seeking to persuade investors that Slovenia won’t follow Cyprus and four other euro members in seeking international aid. The government sold 18-month bills at a yield of 4.15 percent yesterday, compared with 3.99 percent in December 2011, according to Finance Ministry data.
The yield on Slovenia’s 2018 euro-denominated bond increased 11 basis points to 5.52 percent at 3 p.m. in Ljubljana, after peaking at 6.08 percent on March 28, according to data compiled by Bloomberg. That compares with a yield of 4.72 percent on five-year notes from junk-rated Portugal, a euro member rated five levels below Slovenia’s Baa2 investment-grade assessment from Moody’s Investors Service.
“In the absence of a detailed plan, I won’t be surprised if the government faces an unenthusiastic investor base,” RBS’s Ameli-Renani said. “The government will have to present a credible and detailed plan on the banking sector that foresees rapid implementation before it can borrow overseas.”
The yield on Slovenia’s dollar-denominated bond maturing in 2022, which dropped to 5.98 percent yesterday, rose 15 basis points, or 0.15 percentage point, to 6.13 percent today at 3 p.m. in Ljubljana. The sovereign last tapped the bond market in October, when it sold $2.25 billion of debt at 5.5 percent.
The country may sell 3-year or 5-year benchmark bonds with a possible size of 1 billion euros or 2 billion euros if it manages to get strong feedback from investors, David Schnautz, a strategist at Commerzbank AG, said in an e-mail today.
Slovenia should make a credible commitment to overhaul its banking system before tapping the international bond market, said Sam Finkelstein, who helps manage $40 billion in emerging-market debt at Goldman Sachs Asset Management. The New York-based company has an overweight stance on Slovene bonds and may buy more of the securities if the country addresses the bad-debt issue, he said today in a phone interview from London.
“It’s positive that Slovenia is able to sell T-bills, but I would be hesitant to lend them more money until they show progress on reforms, including privatization, and the bad debt situation,” he said. “They should develop a good relationship with the Troika, as they may need access to liquidity.”
The cost to insure Slovenian government bonds against non-payment for five years using credit default swaps decreased four basis point to 338 today after a 30 basis-point tumble yesterday, the steepest fall among emerging-European nations tracked by Bloomberg. Portugal’s CDS stood at 399 today.
“We bought some of the bonds last week and generally like the story,” John L. Peta, who helps manage $3 billion of emerging-market debt at Threadneedle Asset Management Ltd. In London, said by e-mail today. “We think that the market is over-reacting given that Cyprus was just in the news.”
As political leaders seek to shore up confidence in Slovenia, Finance Minister Uros Cufer and central bank Governor Marko Kranjec will take part in the annual meeting of the International Monetary Fund and World bank in Washington beginning tomorrow.
“Slovenia is definitely not” expected to seek either technical or financial assistance from the IMF, RBS’s Ameli-Renani said. It would be “political suicide for an unstable coalition as Slovenia’s.”
Bratusek told lawmakers yesterday that while urgent measures are needed to be taken to address Slovenia’s woes, the country doesn’t need a bailout. The government will present a plan to narrow the budget gap and fix the banks within a month, a timeframe agreed with European leaders in Brussels, she said.
Bratusek also announced the country plans to sell at least two state-held companies and possibly also a bank.
“The bond will very likely be sold in the U.S. debt markets and I expect the list of state-held assets to be out soon, before the bond roadshow,” Andraz Grahek, a managing partner at Capital Genetics, said by phone in Ljubljana. “There is enough speculative demand to place this bond right now, although the Treasury has shown again it is behaving tactically and changing attitude from one month to the other.”
After the Treasury bill sale, “Slovenia still needs to find around 2 billion euros to cover its budget deficit and recapitalize state-owned banks, with risks to the upside given quite a difference between the official government’s and the Organization for Economic Cooperation and Development bank capital-needs estimates,” analysts at Hypo Alpe-Adria Bank d.d. in Zagreb said in a note to clients today.
Bad loans at Slovenia’s three largest banks Nova Ljubljanska Banka d.d., Nova Kreditna Banka Maribor d.d. and Abanka Vipa d.d. are estimated to represent 30 percent of their total loans, according to the OECD April 9 report. The three lenders need 2 billion euros of fresh capital, Fitch Ratings said April 5.
“I’m surprised they are going ahead so soon, but perhaps they want to keep momentum going after the strong T-Bill sale,” Richard Segal, head of international credit strategy at Jefferies Group Inc. in London, said in an e-mail today.
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