Bloomberg News

Romania May Reopen 2018 Eurobond to Boost Financing Buffer

June 22, 2012

Romania may reopen a euro- denominated bond due in 2018 alongside its existing medium-term notes program to increase its financing buffer against a potential spillover from international turmoil.

The Bucharest-based Finance Ministry said a new bond on international markets would have higher borrowing costs than a reopened existing bond, according to a draft law published on its website today. The ministry said retapping the 2018 bond would be preferable to the 2022 dollar-denominated bond, which already has a “relatively high size” of $2.25 billion.

It’s a “technicality, it’s not a commitment, as the bond was the only issue not included in the GMTN program and the government didn’t have the flexibility to issue it quickly any time,” Deputy Finance Minister Cristian Sporis said in an e- mailed response to questions. “No decision has been reached on the reopening. The government now has all the options on the table in terms of markets, maturities and currencies.”

Romania has borrowed about 36 billion lei ($10 billion) from the domestic market and an additional $2.25 billion from the U.S. market this year. It sold less than half of the planned amount of leu-denominated bills and bonds this month after yields increased by about 20 basis points during the euro-area sovereign debt crisis and internal political bickering ahead of elections.

Romania raised 750 million euros in June 2008 through the euro-denominated 2018 bond.

Contagion

“The ministry intends to prevent external contagion through the strengthening of the foreign-currency buffer” to “avoid future possible pressures on the financing costs,” the ministry said in the document. “The timing of the bond sale, the value and the yield will be set depending on the international market conditions at a specific time.”

The eastern European country plans to borrow as much as 2.5 billion euros ($3.14 billion) on foreign markets in 2012 through debt sales after it stopped relying on international bailout funds. The sales will help finance the budget deficit, which the government plans to lower to below 3 percent of gross domestic product this year from 4.35 percent last year.

The Finance Ministry is counting on a 7 billion-euro medium-term notes program that will run until 2013 to help it raise funds from international markets.

The country also got a 1 billion-euro precautionary loan from the World Bank on June 12, in addition to a 5 billion-euro loan signed last year with the International Monetary Fund and European Union. The government hasn’t drawn any money from current accord so far.

Romania said it plans to use the World Bank loan to strengthen its financing buffer and cover four-month budget spending as pledged to the IMF. It will be able to draw on the money should external conditions or the debt crisis worsen.

To contact the reporters on this story: Andra Timu in Bucharest at atimu@bloomberg.net; Irina Savu in Bucharest at isavu@bloomberg.net

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


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