October 1, 2014 / 9:19 AM / 3 years ago

Romania plans to issue Eurobond to pre-fund 2015

BUCHAREST (Reuters) - Romania plans to issue a Eurobond before the end of this year to pre-finance its 2015 needs, aiming for a maturity longer than 10 years, the finance ministry’s deputy treasury director said on Wednesday.

With debt redemptions totaling roughly 4 billion euros ($5 billion) for the first quarter of 2015, the bond could come as early as this month, and could draw high demand if the European Central Bank launches a new stimulus package that encourages investors to seek higher returns in Europe’s emerging economies.

“We are looking of course to start pre-funding 2015 since we know the first quarter of next year has big redemptions,” deputy treasury director Diana Popescu told Reuters at the Eastern Europe Investment Summit.

“Close to the end of the year everybody is going into vacation and the capital market is closed at that time. We definitely want to avoid ... the election period. It could be before or after that time.”

Popescu also said the ministry aimed for a maturity higher than its previous 10-year benchmark issue, hoping to benefit from having its ratings brought back to investment grade by all three major rating agencies. The bond would be “at least benchmark-sized.”

Debt managers plan to sell up to 3 billion euros in foreign debt issues overall in 2015, but could go higher if they see good opportunities.

“Because of the low interest rate environment, I think we will see an increase in demand on our international papers because at the end of the day Romania is a good credit, with good fundamentals,” Popescu said.

Standard & Poor’s brought Romania back to investment grade in May. Romania is now rated investment grade at Baa3 by Moody’s and BBB- by both Fitch Ratings and S&P.

Locally, domestic debt would continue to be helped by monetary policy easing by the central bank, Popescu said.

On Tuesday, the bank brought rates to a new record low of 3 percent and cut commercial banks’ minimum reserve requirement on leu currency liabilities, which will free up to 3 billion lei into the market.

With households and companies reluctant to borrow, Romanian treasuries will benefit most from banks struggling to put their funds to work, traders said. Debt yields fell as much as 15 basis points on Tuesday.

“Yields on Romanian bonds have been on a downward path, helped by the strong easing cycle from the central bank and also by non-residents’ warm response once we’ve been included in main regional indices,” Popescu said.

“This strong support from monetary policy will balance some downside risks because in November the country runs its presidential election and usually the domestic market is sensitive throughout these periods of time.”

The average maturity of Romania’s debt portfolio is 5 years, compared with 3.9 years in 2012. Under a series of three aid deals led by the International Monetary Fund, Romania has brought its budget deficit down to 2.2 percent of GDP.

Popescu said Romania has so far covered 75 percent of its needs for the year. It also has a hard currency buffer that could cover 5.4 months worth of gross financing needs.

Investor interest in Romanian debt has risen since its 2013 inclusion in benchmark indices by Barclays and JP Morgan.

Popescu said foreigners held around 20 percent of all domestic leu and euro-denominated debt at the end of July, and no major shifts were expected.

“Now everybody is rethinking their aggregate emerging market exposure, so countries like Romania, which has improved fundamentals, good fiscal consolidation, could see some additional inflows.”

“But at the same time because of the Russia-Ukraine conflict we might see some investors leaving this region once the tensions are getting severe. We have had inflows so far, as western portfolio flows had been reallocated into NATO’s eastern member countries.”

Popescu also said the ministry is working on an electronic trading platform for primary dealers that could enter testing at the end of this year and become functional in 2015.

Follow Reuters Summits on Twitter @Reuters_Summits.

(1 US dollar = 0.7943 euro)

Additional reporting by Jason Hovet; Editing by Ruth Pitchford

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