Bloomberg News

Slovenia May Sell Debt in Dollars or Yen If T-Bill Auction Fails

November 23, 2011

Nov. 22 (Bloomberg) -- Slovenia, whose borrowing costs surged in the past 10 days, may sell bonds in other currencies than the euro for the first time if it fails to attract enough investors to an auction of 1 billion euros ($1.35 billion) of Treasury bills.

The euro-region nation plans to sell 18-month Treasury bills on Dec. 6 instead of longer maturities after the yield on its 10-year bond rose to a record 7.77 percent on Nov. 11 as the debt crisis in Europe intensified. The notes fell below 7 percent yesterday for the first time since the record jump and were trading at 7.024 percent at 11:07 a.m. in Ljubljana today.

“The situation on European financial markets is too uncertain to rely just on the sale of long-term bonds, even though we are prepared for one,” the Finance Ministry in Ljubljana said in an e-mail response to questions. “We have offers for private placement and we can also sell bonds on the U.S., Japanese or Swiss debt market if the Treasury-bill sale is unsuccessful.”

The turmoil in Europe that began more than two years ago in Greece and has engulfed Ireland, Portugal, Italy and Spain is close to reaching France, the euro region’s second-biggest economy. Slovenia, which borders Italy, saw its borrowing costs surge after the yield on Italian government debt breached 7 percent on Nov. 9.

Slovenia had its credit rating cut one level beginning in September by Standard & Poor’s, Moody’s Investor Service and Fitch Ratings after the ouster of Prime Minister Borut Pahor’s government that failed to convince voters on the need for pension changes and its inability to cut spending.

Debt Sale Plans

Slovenia, which this year sold 3 billion euros of government bonds, may sell as much as 4 billion euros of debt in 2012, the Finance Ministry said.

The former Yugoslav republic will need to sell 3 billion euros of bonds next year to repay old debt and finance the deficit, according to Gyula Toth, the chief strategist for central and eastern Europe at UniCredit SpA in Vienna.

Slovenia failed to rein in fiscal spending and its “reform momentum has stopped” since voters rejected the extension of the retirement age to 65 in a June referendum, said Toth.

The government deficit will narrow to 5.7 percent of gross domestic product by year’s end from 5.8 percent a year ago and from a balanced budget in 2007, according to the European Commission forecast. Public debt is estimated to surge to 45.5 percent of total output from 38.8 percent in 2010, the Nov. 10 report by the European Union’s executive arm said.

‘Nonsense Price Action’

“The price action is nonsense, since Slovenia has low debt levels,” Lutz Roehmeyer, a fund manager at Landesbank Berlin Invest in Berlin who oversees 11.5 billion euros and owns Slovenian bonds and government guaranteed debt issued by banks, said in an e-mail today. “That has to change now. If not, the country will be a troubled one.”

Greece, Ireland and Portugal had to seek assistance from the EU and the International Monetary Fund after borrowing costs became unsustainable. Slovenia has no plans to seek aid from abroad, EU and Development Minister Mitja Gaspari said on Nov. 15.

Slovenia faces early elections on Dec. 4 with former Prime Minister Janez Jansa likely to win the contest, according to latest opinion polls. If he forms the new government, Jansa will need to rein in spending and spur the economy, which may be sliding into recession, according to Finance Minister Franc Krizanic.

ECB Purchases

Borrowing costs eased yesterday after the European Central Bank stepped up purchases of Italian government bonds, according to analysts, including Radivoj Pregelj from lender Abanka Vipa d.d.

“The ECB in its Securities Market Program isn’t buying Slovenian bonds,” the Finance Ministry in Ljubljana said. “We believe there is no need for that since Slovenia’s problems can be solved with the implementation of structural reforms and further consolidation of public finances.”

The Slovenian Democratic Party, led by Jansa, would get 25 percent support, followed by the Citizens List of Gregor Virant, with 19 percent, according to a poll by Mediana and published by the public broadcaster TV Slovenija on Nov. 14. Zoran Jankovic, the Ljubljana mayor who joined the race on Oct. 11, was third with 14 percent.

Slovenia is rated AA- at S&P and Fitch and an equivalent Aa3 at Moody’s, the fourth highest investment grade.

--Editors: James M. Gomez, Paul Abelsky

To contact the reporter on this story: Boris Cerni in Ljubljana, Slovenia, at bcerni@bloomberg.net

To contact the editor responsible for this story: James Gomez at jagomez@bloomberg.net


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