Slovakia Set to Issue More Debt Next Year as Bonds Mature

  • State agency estimates 2017 issuance at 6.7 billion euros
  • Country delays syndicated-bond sale on debt-brake law rules

Slovakia may sell more debt next year as the country readies to pay down maturing bonds and legislation prevents it from accelerating borrowing this year, the head of government debt-management agency said.

The euro-area member may issue as much as 6.7 billion euros ($7.5 billion) in 2017, Daniel Bytcanek, the head of the agency Ardal said Wednesday in an interview. The country will also seek to raise between 1.3 billion and 1.7 billion euros by end-2016, adding to 4.1 billion euros from the first nine months, he added. At the same time, Ardal will continue buying back bonds maturing 2017 in the coming months to create room for more borrowing.

The country’s debt has rallied in the past two years, helped by the European Central Bank’s bond-buying program and government progress in reducing the budget deficit, which is set to narrow next year and swing into a surplus in 2019. Still, Slovakia is missing a chance to fully benefit from record-low yields as its so-called debt-break law limits borrowing and may trigger penalties if debt reaches certain thresholds.

“We are delaying the issuance of a new syndicated benchmark bond to next year because of the debt-break law,” Bytcanek said by phone from the capital Bratislava. Ardal will instead open a new bond line in November via a domestic auction, he said.

Slovakia, which is rated A2 by Moody’s Investors Service and A+ by S&P Global Ratings, has 48.1 billion euros in outstanding debt, including 5.2 billion due next year, according to data compiled by Bloomberg.

The yield on the Slovak benchmark bond maturing 2027 was five basis points higher at 0.32 percent at 4:21 p.m. in Bratislava, or 35 basis points above similar German Bunds and two basis points above France, which is rated the third-best grade at both rating companies. Ardal says the ECB purchases have knocked about 60 basis points from the yield.

The government approved its 2017 budget draft earlier on Wednesday with a deficit target of 1.3 percent of gross domestic product, down from an estimated gap of 2 percent this year. The cash deficit is set to increase to 2 billion euros, from 1.3 billion expected this year. 

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