Bloomberg News

Czechs Raise 2 Billion Euros in First Eurobond Since 2010

February 21, 2012

(Updates with amount sold in second paragraph.)

Feb. 20 (Bloomberg) -- The Czech Republic said it raised 2 billion euros ($2.7 billion) in its first foreign bond sale in 1 1/2 years as yields approach a three-month low after steps to cut the budget deficit and an easing in Europe’s debt crisis.

The notes due in May 2022 were priced to yield 160 basis points more than the benchmark mid-swap rate, down from the original guidance of 170, said a banker who couldn’t be named because the terms are private. That compares with a 105 basis- point spread in September 2010, when the country raised the same amount from April 2021 debt.

The government is reviving the sale after hiring bankers last July as speculation that Greece will avoid default and the European Central Bank’s purchases of euro-area debt helped cut the yield on the Czech 2021 Eurobonds to 3.69 percent by 6:11 p.m. in Prague, from 4.66 percent at the end of November. The yield reached a three-month low of 3.66 percent on Feb. 14 after Finance Minister Miroslav Kalousek on Feb. 1 pledged further spending cuts needed to meet a deficit-reduction target.

“The Czech Republic’s orthodox fiscal management does remain a key strength when compared with other countries in the region,” David Petitcolin, a London-based emerging-market analyst at Royal Bank of Scotland Group Plc, wrote in a Feb. 16 report, before the Eurobond offering was started.

Deficit Crisis

Barclays Capital, Ceska Sporitelna AS, Societe Generale SA and UniCredit SpA are managing the deal. Demand was 1.5 billion euros more than the amount sold, the Czech Finance Ministry said today in an e-mailed statement.

The ministry put the sale on hold last year as concern increased the euro region might not contain its deficit crisis, driving up borrowing costs across the continent. The region is the main buyer of Czech exports, which account for about 70 percent of the country’s gross domestic product.

Czech government debt at 42 percent of GDP compares with 57 percent in Poland, 77 percent in Hungary and more than 80 percent in Germany and France, European Commission estimates for 2012 show. Deposits at Czech banks covered 137 percent of loans at the end of 2010, the highest level in emerging Europe and compared with 93 percent in Poland and 73 percent in Hungary, according to data posted on the Czech National Bank’s website.

‘Low Indebtedness’

“The Czech Republic offers an internally and externally well-balanced economy with low indebtedness -- private and public -- and a sound banking sector,” Anne-Francoise Bluher in Prague and Guillaume Salomon, SocGen analysts in London, wrote in a report to clients today. “The strong Czech fundamental backdrop makes us believe that any negative contagion of Czech financial markets and credit spreads should be temporary.”

The cost to insure Czech bonds for five years with credit- default swaps fell to 136 basis points today, a three-month low, from as much as 202 on Nov. 25. The contracts, which decline as perceptions of creditworthiness improve, traded below those for higher-rated Austria and France at 165 and 176, respectively, according to data compiled by CMA, a unit of CME Group Inc.

--With assistance from Andrew Reierson and Ben Martin in London. Editors: Linda Shen, Gavin Serkin

To contact the reporters on this story: Hannah Benjamin in London at hbenjamin1@bloomberg.net; Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

To contact the editors responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net; Gavin Serkin at gserkin@bloomberg.net


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