Romania raised approximately EUR 5 billion on July 9 in its first FX bonds issued after the political normalization and the fiscal corrective package aimed at addressing its major fiscal slippage, amid reported robust demand. The country’s borrowing cost, revealed by both the spreads in the FX bond issues and the yield for the 10-year local currency debt on the secondary market, have decreased after six months of political uncertainty.
The issue comes after the creditors assessed the fiscal package passed by the newly formed government of prime minister Ilie Bolojan as sufficient to avert sovereign downgrade this autumn. The package also convinced the European Commission not to take steps against the country whose public deficit hit 9.3% of GDP last year.
The package includes VAT rate hikes and higher excise taxes, along with other reactive measures aimed at bringing some 0.5%-of-GDP more revenues to budget this year (1.2% of GDP in annualized terms) and 3.35% of GDP in 2026, when the government plans to freeze the public wages and pensions.
The Romanian government on July 9 borrowed USD 3.75 billion in two issues with maturities of 5 and 10 years and EUR 1.5 billion by reopening an FX bond maturing in 2039, according to Profit.ro. The total demand was initially very high, at USD 15 billion, of which USD 9.75 billion for dollar-denominated securities and EUR 4.5 billion for euro-denominated ones. During the bookbuilding process, the demand eased to USD 10 billion.
The state borrowed USD 2 billion for the 5-year maturity and USD 1.75 billion for the 10-year maturity. By reopening the euro-denominated issue with a maturity in 2039, the government borrowed another EUR 1.5 billion.
Borrowing costs were set at T+185 basis points for the 5-year bonds, and T+230 basis points for the 10-year maturity in the case of the US dollar-denominated bonds and at MS+375 basis points for the 2039 bonds denominated in euros, according to Bloomberg.
5-year dollar bonds were quoted at the morning opening at T+225 basis points, 10-year bonds at T+270 basis points, and euro bonds due in 2039 at MS+415 basis points.
The MS (midswap) rate for the 15-year euro is currently 2.82%, while the T indicator for US Treasury securities of the respective maturity is at 3.86% for 5 years and 4.12% for 10 years. This brings the yields at 6.97% for the 2039 euro-denominated bonds at the morning opening, while the yields of 5 and 10-year dollar-denominated bonds would be 6.11% and 6.82%, respectively.
Romania had already raised EUR 4 billion in February, and EUR 2.75 billion in March with FX bonds denominated in US dollars and euros, out of the total target of EUR 13 billion for the entire year.
“Romania’s credit risk premium remains high compared to other countries with the same rating, and investors will closely monitor implementation risks, as social unrest and the sharp decline in the popularity of the ruling parties could intensify tensions within the coalition,” according to a UniCredit report quoted by Cursdeguvernare.ro.
The high borrowing cost paid by Romania, above that of Greece (in the same rating category BBB-) or even Serbia (BB+) according to UniCredit data largely explain the strong demand reported by the Romanian Treasury on July 9.
iulian@romania-insider.com
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