Bloomberg News

Record Corporate Bond Sales Hit Euro Crisis Wall: Poland Credit

June 01, 2012

Europe’s debt crisis is derailing Poland’s record corporate bond sales as banks curb lending.

PGE SA (PGE), Poland’s biggest utility, and PKO Bank Polski SA, its largest bank, are among companies that delayed or canceled debt sales since April. While Polish companies and lenders raised a record 10.1 billion zloty ($2.84 billion) of debt between January and April, sales dwindled to as little as 186 million zloty in May, according to data compiled by Bloomberg.

Benchmark bond offerings by Poland’s state-controlled companies and the Warsaw stock exchange have helped boost corporate debt sales as the syndicated loan market dries up. While Fitch Ratings said in January it expected company debt sales to total 30 billion zloty in 2012, that forecast is now at risk, Miroslaw Dudzinski, a director for central and eastern Europe at Fitch, said in a May 29 interview.

“What’s happening in Greece and Spain is definitely having a negative impact on the market,” Wojciech Gorny, who helps manage 2.5 billion zloty in fixed-income assets at Millennium TFI, said by phone from Warsaw on May 29. “It increases risk aversion across all asset classes, including bonds.”

Polish corporate dollar bonds tumbled 3.9 percent in May, more than double the 1.5 percent decline for equivalent debt across emerging markets, JPMorgan Chase & Co.’s Corporate EMBI Composite Index shows.

Slowing Expansion

Syndicated loans to Polish companies dropped to $485 million in the first five months of the year from a record high of $5.62 billion in the same period in 2011, according to data compiled by Bloomberg. That’s the lowest since the comparable period in 2009, when $34.6 million was raised, the data show.

The Polish economy grew at the slowest pace in two years in the first quarter, as euro-region turmoil hurt exports and investment, the statistics office said yesterday.

As a weaker economy cuts demand for loans, PKO expects its interest income to grow at a slower pace in the coming quarters than in the first three months of the year, Chief Financial Officer Bartosz Drabikowski said in an interview on May 29.

On top of external concerns, some Polish builders are struggling to pay off their debt. DSS SA (DSS), which last year sold 118 million zloty of three-year unsecured bonds, filed for bankruptcy in April. PBG SA (PBG) had its rating reduced to selective default by Standard & Poor’s yesterday. Poland’s third-largest builder is discussing a financing “solution” with its banks for the next 12 months, the company said on May 28.

‘Hard to Sell’

PBG has 375 million zloty of notes coming due in September and 450 million zloty of bonds maturing in October 2013, according to data compiled by Bloomberg.

“When it comes to the corporate segment, the market is tough and it’s hard to sell anything,” Maciej Slomka, head of fixed-income trading at Ipopema Securities SA, wrote in an e- mailed response to questions yesterday. “DSS’s default and problems at PBG have led to outflows from mutual funds, so they don’t want to buy corporate bonds.”

Polish pension funds, with 237.7 billion zloty in assets under management on April 30, are looking for “quality and waiting for big offerings” from companies, Slomka said.

Utility PGE won’t need to tap bond markets for two years to fund expansion after a court blocked its takeover of peer Energa SA, Chief Financial Officer Wojciech Ostrowski said in an interview on May 18. Two days earlier, he said the company won’t sell debt in the near-term as market conditions worsen.

Default Swaps

The cost of insuring Polish government debt against non- payment for five years using credit-default swaps rose eight basis points to 282 at 10:56 a.m. in Warsaw, the highest since Jan. 13, data compiled by Bloomberg show.

The swaps cost 77 basis points less than the average for countries in eastern Europe, the Middle East and Africa that are included in the Markit iTraxx SovX CEEMEA Index, compared with last year’s average 50 basis-point difference.

Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to debt agreements.

The extra yield investors demand to hold Poland’s dollar bonds rather than U.S. Treasuries grew three basis points to 281 today, JPMorgan Chase & Co.’s EMBI Global index shows. The yield gap of 10-year zloty bonds over equivalent German bunds increased five basis points to 430, most since Sept. 22, data compiled by Bloomberg show. The zloty weakened 0.5 percent to 4.4148 against the euro after declining 4.9 percent in May.

Polskie Gornictwo Naftowe i Gazownictwo SA, known as PGNiG, will sell as much as 2 billion zloty of bonds in June, Poland’s biggest gas company said in a statement on May 22. PKO expects market conditions to improve in June, allowing it to sell bonds denominated in euros or Swiss francs, Deputy Chief Executive Officer Jakub Papierski told PAP newswire on May 16.

“A lot of bond sales are being discussed on the market right now, but some companies are waiting for better conditions,” Fitch’s Dudzinski said in a phone interview on May 29. “Psychology is key because the companies have to feel comfortable about the future in order to tap the market.”

To contact the reporter on this story: Piotr Skolimowski in Warsaw at

To contact the editor responsible for this story: Gavin Serkin at

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