* Syndication not mentioned in Q4 plans
* Investment-grade rating hangs by thread
By Helene Durand and Laura Benitez
LONDON, Oct 6 (IFR) - Portugal has quietly ditched plans to
raise funding via a syndication as concerns around the
sovereign's eligibility for the ECB QE programme continue to
pressure the country's bonds.
The sovereign in its third quarter guidelines had announced
its intention to issue bonds using a combination of syndications
However, the mention of a possible syndication was dropped
on Monday when the sovereign released guidelines for Q4.
Unlike auctions, which tend to be run-of-the-mill affairs,
syndications can leave sovereigns more exposed to execution risk
as banks need to find enough demand to cover a transaction.
While Portugal's Q4 statement said it would continuously
monitor market conditions and that this may result in a change
of the guidelines, the sovereign has little chance to access the
market until October 21 at the earliest.
That is when DBRS will say whether it has kept Portugal's
rating in investment-grade territory - the last thread keeping
the country's debt eligible for the ECB purchase programme.
"If there is a way for Portugal to remain in the QE
programme, then their funding programme can go on as planned,"
said John Taylor, portfolio manager, fixed income at Alliance
"If that isn't the case, there would be a negative reaction
in the market and it's difficult to say exactly what sort of
impact that would have on their yield and spread."
Ten-year Portuguese government yields have risen since the
beginning of the year as concerns around the health of the
country's economy and banking sector have escalated.
They were quoted at 3.52% on Thursday afternoon, having
started the year at 2.56%, according to Thomson Reuters data.
"Portugal is already trading around 250bp wide of Spain so
the market is acknowledging this risk to some extent," said
"Greece is yielding 8.5% versus 3.5% for Portugal and is
much lower rated but does indicate that Portuguese yields could
move quite a long way in this scenario."
Things have not been helped by comments made by DBRS's head
of sovereign ratings. He told Reuters in the middle of August
that while the outlook on the sovereign's BBB (low) rating
remained stable, pressures appeared to be mounting.
He told the FT on Thursday that Portugal was in a "vicious
circle" and had "large structural problems."
Moody's and Fitch downgraded the sovereign to junk at the
end of 2015, to Ba1 and BB+, joining S&P, which already rated it
The failure to conduct a syndication in the third quarter
has also meant Portugal could now fall short of the 18bn-20bn
gross issuance target it had outlined for 2016.
According to a presentation dated September 22, the IGCP
said it had raised 13bn of medium and long-term debt between
January and July this year. Since then, it has raised 1.75bn in
two auctions. Even if Portugal manages to print the upper end of
the auction amounts it has outlined for Q4, it will still fall
short of its yearly target, potentially by as much as 3.25bn.
Portugal's IGCP was not immediately available for comment.
(Reporting By Laura Benitez, Editing by Julian Baker)