By Robert Hogg
LONDON, Oct 4 (IFR) - Hungary has opened books for its first euro deal in six years as it markets a 10-year bond at 125bp area over mid-swaps.
The euro bond will considerably extend Hungary’s curve in the currency as its longest outstanding matures in 2020.
Given the lack of a curve, there will be a lot of price discovery involved in the process. Bulgaria (Baa2/BB+/BBB-) and Romania (Baa3/BBB-/BBB-) are the best comparisons, though not perfect.
Bulgaria has a €1bn 2.625% March 2027 note trading at a bid yield of 1.46% or 63bp over mid-swaps, according to Tradeweb, while Romania has a €1bn 2.375% due April 2027 bond quoted at 2.18% yield or plus 134bp.
The reason behind the big difference in trading levels is down to technical reasons. Romania is a regular issuer while Bulgaria is not expected to borrow in the international markets this year.
“Plus 125bp is very attractive but I think they’ll come down to somewhere around plus 90bp-100bp,” said an investor about Hungary’s initial price thoughts. “It looks okay, it’s a solid name.”
Hungary, which has been absent from all core international markets for three years, met investors from last Wednesday ahead of a deal that will begin to reprofile its debt.
In a strategy that echoes those of other CEE sovereigns such as Latvia and Slovenia, Hungary has also bought back some of its US dollar debt to rebalance its liabilities in favour of the single currency.
Hungary launched a capped US$1.2bn of five US dollar bonds through an offer - which closed on Tuesday - that will be fully funded by the euro issue. That bond will, therefore, raise about €1bn as Hungary is not seeking any new money on top.
While politically Hungary’s government led by Viktor Orban has generated plenty of controversial headlines, economically the country is moving in the right direction.
Last year, Hungary (Baa3/BBB-/BBB-) reclaimed its investment-grade status from all three rating agencies.
The trade is for today’s business via BNP Paribas, Citigroup, Deutsche Bank and ING.
Reporting by Robert Hogg; editing by Sudip Roy