Slovenia Sells $3.5 Billion of Dollar Bonds After Rebound

Slovenia sold its first dollar-denominated notes since an overhaul of the nation’s banking industry last year helped reduce the risk of a bailout.

Slovenia raised $1.5 billion in a five-year bond sale and $2 billion of 10-year securities, each yielding 280 basis points above U.S. Treasuries, according to data compiled by Bloomberg. The yield on the sovereign’s $2.25 billion of bonds due in October 2022 declined 10 basis points, or 0.10 percentage points, to 5.13 percent at 10:35 a.m. in Ljubljana, according to data compiled by Bloomberg.

The bond sale, the first by an emerging-market country since Jan. 22, comes after Prime Minister Alenka Bratusek’s government boosted the capital of the nation’s top three banks by 3 billion euros ($4.1 billion) in December and started cleaning up bad loans by moving them to a special state agency. The yield on its 2022 notes surged to as high as 7.28 percent in June amid speculation the former Yugoslav republic would need foreign aid.

“This is a very good deal for both sides as Slovenia gets cheaper funding” and demand signals market confidence in country, Lutz Roehmeyer, who manages $1 billion at Landesbank Berlin Investment, including Slovenia government and corporate debt, said by e-mail. “Buying interest after transaction and secondary market performance should be good.”

Monetary Stimulus

The extra yield investors demand to buy emerging-market debt over Treasuries fell two basis points to 341 basis points. It reached a year high of 366 points on Feb. 3 on speculation the U.S. will further reduce monetary stimulus that has boosted demand for higher-yielding assets outside of developed countries.

Slovenia had originally planned to sell the securities to yield between 300 basis points and 312.5 basis points above Treasuries, according to a person familiar with the plans who asked not to be identified because the person was not authorized to speak on the subject. Barclays Plc, Goldman Sachs Group Inc. and JPMorgan Chase & Co. arranged the sale.

The size of orders exceeded 16 billion euros, Irena Ferkulj, a spokeswoman for the Finance Ministry in Ljubljana, said in an e-mailed statement today.

Regional First

“This is the biggest book order for a syndicated issue of government bonds in eastern and central Europe, the Middle East and Africa in 2014,” Ferkulj said. More than 80 percent of the issue was bought by investors from the U.S. and the U.K., she said.

Slovenia, the first post-communist country to adopt the euro in 2007, must carry out “more ambitious” spending cuts to offset bank clean-up costs, the International Monetary Fund said in a Jan. 17 report. Banks will remain “fragile” unless the overleveraged corporate sector is also restructured, the IMF said. The nation’s central bank said last month the “highly indebted” corporate sector may need about 5 billion euros to lower its debt and make them more competitive.

The country, rated by Standard & Poor’s at A-, the fourth-lowest investment grade, sold $3.5 billion in securities maturing in 2018 and 2023 in May in the last offering overseas. The shorter-dated debt was sold at 430.6 basis points over Treasuries and the longer bonds at 437.4 basis points, data compiled by Bloomberg show.

Debt Repayment

Slovenia needs to repay about 3.5 billion euros of debt this year, including bills, according to data compiled by Bloomberg.

The country, whose credit rating outlook was changed to stable from negative by S&P and Moody’s Investors Service last month, may sell as much as 7.7 billion euros of debt in 2014, including prefinancing to repay debt in 2015 and 2016, the government said Jan. 9. Slovenia will today auction about 80 million euros of bills, according to the Finance Ministry’s website.

Slovenia’s cash reserves are now at 5.1 billion euros and “this is enough to cover the 1.6 billion euros redemption in April, alongside any potential cash recapitalization of Gorenjska Banka d.d. and Banka Celje d.d. that could arise should they fail to find private capital support by June-end,” Carlos Ortiz, an economist at UniCredit Bank AG in London, wrote in a note to clients today.

Capital Plans

The nation’s central bank said Feb. 4 that Banka Celje, Gorenjska Banka, units of Italy’s UniCredit SpA, Austria’s Raiffeisen International AG and Hypo Alpe-Adria Bank International have submitted capital-strengthening plans. Banka Celje would need 388 million euros of fresh capital and Gorenjska 328 million euros in an adverse scenario, the central bank has said.

General government borrowings will climb to 77.7 percent of gross domestic product this year from an estimated 70.9 percent in 2013, the IMF said. It stood at 54.3 percent in 2012.

The export-driven economy, which contracted for the last eight consecutive quarters, is forecast to shrink 1.1 percent this year before recovering in 2015, according to the IMF.

Before it's here, it's on the Bloomberg Terminal.