Hungary Says Templeton Cut Debt Holdings by 20% on Ukraine Woes

Franklin Templeton has cut its holdings of Hungarian government bonds by a fifth after the fund’s investments in Ukraine slumped, according to Hungary’s Debt Management Agency.

Templeton’s bond funds, run by Michael Hasenstab, held 2 trillion forint ($7.4 billion) of Hungarian assets before the sale, the agency’s Chief Executive Officer Gyorgy Barcza said on M1 state television on Wednesday without specifying when the disposals were made. A spokesman for Templeton didn’t immediately comment when reached by phone.

Hasenstab, who made winning bets on Irish bonds at the height of the euro crisis, faces losses on his $7 billion investment in Ukrainian bonds after prices plunged amid a pro-Russian insurgency in the nation’s east. The government is seeking a writedown to the principal value of its bonds as it seeks to save $15.3 billion over four years in a debt restructuring.

Templeton is “slowly downsizing its holdings in markets where it can sell,” Barcza said. “Its funds are locked up in Ukraine.”

Foreign-investor holdings of Hungary’s forint-denominated bonds have dropped 4.5 percent since hitting a two-year high on April 10, government data show.

The yield on the nation’s 10-year forint note, which fell to a record 2.76 percent on Jan. 27, stood at 3.69 percent at 1:06 p.m. in Budapest, the highest level in seven weeks.

Hungary’s local-currency bonds have been a more lucrative investment than many of its east European peers over the past five years, returning 18 percent in dollar terms since the end of 2010, compared with 12 percent for Poland and 1.6 percent for the Czech Republic, according to indexes compiled by Bloomberg.

Other foreign investors are buying what Templeton is selling, Barcza said. “There’s no change in the assessment of Hungary’s debt.”