Slovaks to Delay Sale of International Bond as Limit Near

Slovakia will wait until January before tapping international bond markets as the debt-ceiling law cuts room for sales in 2014 and prevents the country from taking advantage of record-low yields, a state official said.

The eastern euro-area member state seeks to sell about an additional 400 million euros ($505 million) in domestic auctions this year, bringing the full-year gross issuance to less than 4.8 billion euros, said Daniel Bytcanek, Director of the state debt-management agency Ardal. The country plans to raise about 5 billion euros in 2015, starting with a syndicated offering of a “benchmark” long-term bond in January, he said.

Slovak 10-year yields have fallen more than one percentage point this year as the European Central Bank has loosened monetary policy amid a weak economy and slowing inflation. Even with borrowing costs at a record low, the government has started tapping its cash reserves to ensure public debt will remain well below 57 percent of output, the threshold which, according to the debt-ceiling law, triggers the need for a balanced budget.

“The whole idea is to borrow wherever possible if times are good and stay away from the markets at bad times,” Bytcanek said Oct. 1 in an interview in Bratislava, Slovakia. “This principle is now being undermined. If the limit wasn’t there, we would be finishing a new benchmark issue at this very moment.”

Drop Auction

Slovakia, which is rated A by Standard & Poor’s, above Italy or Ireland, has raised 4.3 billion euros so far this year, including a 1.5 billion-euro syndicated sale in January and 3.4 billion in Norwegian krone bonds two months later. The agency will probably cancel an auction scheduled for Dec. 15 and will seek to raise 200 million euros in each of the remaining ones planned for Oct. 20 and Nov. 18, Bytcanek said.

Ardal also expects to buy back about 500 million euros more of debt maturing in January, reducing the total debt load at the end of 2014, Bytcanek said. Debt should therefore be “safely” below the limit, he said.

Slovakia has 3.63 billion euros in debt maturing within the next 12 months, including 3.2 billion euros due Jan. 20, according to data compiled by Bloomberg. The Finance Ministry forecasts public debt will reach 55.4 percent of gross domestic product in 2014 and remain at that level in 2015, compared with 96 percent of GDP in the euro-area projected by the European Commission for this year.

Accelerating Economy

The country is benefiting from accelerating economic growth, which helps job creation and boosts tax revenue. Standard & Poor’s on Aug. 1 cited the positive impact of growth on public debt when raising outlook on its rating for Slovakia to positive from stable.

Slovakia’s 10-year borrowing costs dropped to 1.39 percent from 2.64 percent on Jan. 9, according to Bloomberg generic rates. The surcharge over German Bunds was 48 basis points compared with 34 basis points for France, which has a AA rating.

Ardal will seek to raise between 1 billion euros and 2 billion euros from international investors before the January payment, with maturity of 10 years or more, depending on market conditions, Bytcanek said. The agency will also drop plans to sell debt in other currencies than euros next year as issuance is set to stay near this year’s level, he said.

The amount maturing in January isn’t forcing the country, which currently has more than 3.5 billion euros in reserves, to accept an “unfavorable” price in the planned sale, Bytcanek said.

“Not at all,” he said. “We have a plan B and C, and we are working hard on them.”

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