Bloomberg News

Romania Sells $1.5 Billion in First 10-Year Dollar Bond Offering

February 02, 2012

Feb. 1 (Bloomberg) -- Romania sold $1.5 billion of bonds in its first debt offering denominated in dollars as the government seeks to finance a budget deficit and repay maturing debt.

The 10-year, 6.75 percent notes were priced to yield 6.875 percent, according to data compiled by Bloomberg. The eastern European country issued the bonds yesterday under a medium-term note program valued at 7 billion euros ($9.2 billion) that will run until 2013.

Romania is seeking to benefit from falling borrowing costs by selling the dollar bonds now, after postponing the issue in November because of the European debt crisis. The Finance Ministry said on Nov. 11 that it aims to raise between $500 million and $2 billion through the sale to bolster government finances. Yields on existing euro-denominated sovereign notes due in 2018 have fallen 25 basis points to 6.47 percent this year.

“It’s positive that the government is finally returning to the market,” Raffaella Tenconi, an economist at Bank of America Merrill Lynch in London, said yesterday before the terms of the sale were set. “We think the fundamentals continue to improve and the International Monetary Fund and EU program is on track so investors’ interest should further strengthen over the course of the year.”

The country plans to borrow as much as 2.5 billion euros of bonds on foreign markets in 2012 through two debt issues after it stopped relying on international bailout funds. The sales will help to narrow the budget deficit, which the government wants to shrink to 1.9 percent of gross domestic product this year, from 4.35 percent in 2011.

‘Interest Was Huge’

“The investors’ interest was huge, considering this is Romania’s first dollar-bond sale and it’s a clear signal of confidence in Romania’s fiscal measures,” Deputy Finance Minister Bogdan Dragoi said in a phone interview. The offering attracted bids of almost $7 billion, he said.

The government stopped drawing funds from a 20 billion-euro bailout from the Washington-based IMF and the European Union in March last year. Policy makers cut state wages and raised taxes to improve the budget outlook and the country won a new two-year precautionary loan of 5 billion euros from the IMF and the EU in 2011.

The cost of insuring against a default by Romania has declined this year by about 50 basis points, or 0.5 percentage point, to 399 basis points yesterday, 188 less than five-year credit-default swaps for neighboring Hungary, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Better Than Peers

The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

“The underlying credit story in Romania has been better than in some of its central eastern Europe peer countries,” Blaise Antin, who helps manage $5 billion in emerging-market debt at TWC Group Inc. in Los Angeles, said in an e-mail. “Although the government has not provided a big new issue premium with this new bond, we still expect this bond to perform well.”

Romania sold its first bonds under the medium-term note program last June when it raised 1.5 billion euros of five-year bonds in its biggest offering of debt to international investors.

Citigroup Inc., Deutsche Bank AG and HSBC Holdings Plc are managers of the latest dollar-bond sale.

“Romania has the lowest debt per-capita in the European Union of 4,570 euros and we are not pressured to pay it right away,” President Traian Basescu said in a televised speech from Bucharest yesterday. “We will keep refinancing it, as we are doing today, but the most important thing is not to let this debt widen too much. By keeping a low debt the country can develop nicely.”

--With assistance from Tim Catts in New York. Editors: Linda Shen, Emma O’Brien

To contact the reporters on this story: Ben Martin in London at bmartin38@bloomberg.net; Irina Savu in Bucharest at isavu@bloomberg.net

To contact the editors responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net; James M. Gomez at jagomez@bloomberg.net


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