The caretaker government has successfully issued a record debt of international capital markets in a tizzy – for a total of BGN 8.5 billion. This is within the approved debt ceiling in the budget law for this year – BGN 11.7 billion, announced the Ministry of Finance.
Adding the DCC emissions on the domestic market to date – for a total of BGN 1.7 billion, the debt assumed so far this year is a total of BGN 10.2 billion, which is below the ceiling. Until the end of the year, the Ministry of Finance does not plan another exit to the external capital markets, the Ministry of Finance also stated.
Since part of the assumed new debt is used to repay old, the new indebtedness that the government can take on for the whole of 2024 is limited by law to BGN 6.6 billion (the difference between the amount of the debt in the end of 2023 and the ceiling recorded for the end of 2024, b.).
The size of the debt placed on Wednesday is a record because of the growing deficits and needs of the budget. Interest in the shows has been huge. According to the information of "Capital" the orders placed were for 17 billion euros, which is nearly 4 times oversubscription.
It is also important that for the first time in 22 years, i.e. since the time of Finance Minister Milen Velchev and the “Sakskobrurggotski“ since then, Bulgaria has taken out a loan denominated in US dollars. This is for the purpose of diversifying investors, because according to the debt strategy of the Ministry of Finance, Bulgaria will need loan financing for BGN 36.4 billion in the next three years. In addition, many other Central and Eastern European countries are taking advantage of the “extremely liquid and deep US dollar bond market”, the MoF points out.
The bonds for BGN 8.5 billion were placed on Wednesday in three tranches, denominated in euros and US dollars.
The first tranche consisted of euro-denominated bonds with a maturity of 8 years, in a volume of 1.75 billion euros and an interest coupon of 3.625%.
The second tranche consisted of euro-denominated bonds with a maturity of 20 years, a volume of 1.25 billion euros and an interest coupon of 4.25%.
The third tranche consisted of USD-denominated bonds with a maturity of 12.5 years, a volume of USD 1.5 billion and an interest coupon of 5%.
„Issue oversubscription levels and strong investor interest allowed the cost of funding for the 8-year bond to drop significantly to a record low of 135 basis points over the average interest rate swap, and for the 20-year – 190 basis points”, the Ministry of Finance commented.
The debut issue of bonds in US dollars has also caused increased investor interest, and in the process of placing the papers, the spread compared to the reference US bonds has been reduced to 135 bp.
The triple tranche of bonds is part of the Medium-Term Global Debt Issuance Program on the International Capital Markets.
„Bulgaria managed to place a bond loan in dollars and euros on the international capital markets under extremely advantageous conditions. The result of the placement shows that we have correctly planned the volumes and maturities to offer to investors, the time in which to conduct the transaction and the currencies in which to issue the bonds. In this way, our country achieved the goals set in its emission policy and diversified its investor base in the conditions of a volatile market environment internationally. The result of the issue also shows that the confidence of the foreign markets in the predictable financial and economic policy of Bulgaria is preserved, regardless of the dynamic domestic political environment, commented the Deputy Prime Minister and Minister of Finance Lyudmila Petkova.
„It is not known what the reasons are for the Ministry of Finance to turn to foreign markets, but it should be in sync with the macroeconomic policy of the state and with the BNB. When you're selling something and there's three times more demand than supply, something's wrong – and it is not with those who want to buy cheap, but with those who sell“. This opinion was expressed in the program “In development“ on Bloomberg TV Bulgaria Dr. Boyan Ivanchev, financier and teacher at UNSS.
„The great interest in Bulgaria's new foreign debt issue this week is not a cause for praise in itself, as it did not lead to the achievement of any very favorable conditions for the country,”, he commented on Bulgaria's record foreign debt from around €4.35 billion on Wednesday, with total orders totaling more than €17 billion, with almost four times oversubscription. The country proposed the deal in three tranches – long-term 12-year dollar securities, as well as Eurobonds maturing in eight and 20 years.
Advisors on the deal were BNP Paribas SA, Citigroup Inc., ING Groep NV and UniCredit SpA, which indicated there was strong demand from investors.
„The first thing that makes an impression – all three shows were re-recorded three times. If something isn't that attractive, there won't be that much demand. The Ministry of Finance claims that due to this great demand the price was good enough, but compared to what – versus domestic debt issuance or the basis point premium? On both issues – For the 8-year euro and the 12-year dollar, it is 135 basis points, and for the 20-year it is 190 basis points. If now Bulgaria's spread with Germany's 10-year bonds is 170 points, from April to July it was between 120 and 140. Why wasn't this done earlier, when the spread was more profitable, Dr. Ivanchev asked rhetorically.
He explained that the yield on foreign bonds is not lower than the domestic debt and reminded that when the state issues debt on the domestic market they do not have to pay commissions of probably hundreds of thousands of dollars to intermediaries.