Bulgaria Eurobond Float Wary of Turbulent Summer Waters

Finance | April 9, 2012, Monday // 07:32|  views

Bulgaria plans to tap international markets at the end of May or in June to raise funds to repay about EUR 835 M (USD 1.07 B) in 11-year eurobonds maturing on January 15, 2013. File photo

Bulgaria's government, which plans to issue eurobonds worth up to EUR 1 B in the second quarter, may be forced to struggle with volatile markets if it misses out on the current benign conditions, analysts have warned.

The sale procedure can be arranged in a matter of two or three months, so it can take place not the beginning of June, as forecast by the finance minister, but in July, according to Georgi Angelov, Senior Economist at the Open Society Institute Sofia.

"The markets are now in calmer waters, which makes it easy and not that expensive for the government to issue a relatively big eurobond at relatively favorable interest rates," the expert commented.

But calm may not continue long without a storm, which would make it very difficult for Bulgaria to tap international markets at an affordable cost, Angelov warned.

"In this sense, we would have been much better off if the government had prepared all documents for the sale and be ready to tap international markets right now, so that we don't miss the right timing."

Bulgaria's government issued last week a mandate for the sale of eurobonds on international markets to raise funds for repaying debt maturing in early 2013.

Finance Minister Simeon Djankov was entitled to go ahead with preparations of the sale under amendments to the State Budget Act, which the cabinet approved at its meeting.

Bulgaria plans to tap international markets at the end of May or in June to raise funds to repay about EUR 835 M (USD 1.07 B) in 11-year eurobonds maturing on January 15, 2013.

The bonds offered on international markets will be worth up to BGN 2 B, the government decided.

Bulgaria's current center-right cabinet takes pride in its fiscally prudent policies in running the country, which has the second-lowest public debt in the EU after Estonia.

Analysts however have voiced concerns that the eurozone crisis and Bulgaria's vulnerability to Greece's woes may make it difficult for it to tap international markets at a good cost.

According to Georgi Angelov if Bulgaria's government misses the right moment for tapping global markets, it will be forced to start talks with the International Monetary Fund and obtain a loan, despite the country's fiscal prudence and low debt levels.

"But the IMF, as we know all too well, does not grant loans for the interest rates, but for the concrete requirements it seeks to impose," Angelov wrote.

"The more desperate and cash-strapped the country, the easier it is for the IMF to impose their views on economic policy, hardly taking into account what the locals want," the economist commented.

In addition, he said, it should be not forgotten that IMF is associated with the so-called "IMF stigma" - if a healthy country asks IMF for help, then the market decides that the condition of the country is much worse than they thought before.

With a budget gap in four straight years, Bulgaria has no other option but to go for a new eurobond issue in order to repay a global bond maturing in January next year, according to Angelov.

But he said it is not hard to sketch out how things go from bad to worse if the government does not take urgent measures to help the economy grow and rake in revenues from privatizing state assets.

"In just a year, a year and a half, Bulgaria will be forced to plan a new eurobond issue and this type of deals will become chronic events. We have enough time to make the economy, budget and privatization work and avoid that risk. This time should not be wasted. Otherwise in one or two years we will be back where we are now."

Bulgaria has so far weathered the global crisis without borrowing foreign aid.

Right before the summer elections in 2009, the center-right GERB party said it will immediately sign an agreement with the IMF to stand as a guarantee for the country's financial stability if they come to office.

The party of current Prime Minister Boyko Borisov said they would seek to start immediate talks with the IMF for a stand-by, not a precautionary agreement, but after their election victory abandoned the plan.

Bulgaria currently operates in a currency board regime and the lev is pegged to the euro.

Bulgaria's government and the European Commission recently revised downwards their forecast for the economy of the Balkan country, estimating it is to grow 1.4% this year due to worsening growth prospects in key trading partners across Europe and stagnant domestic demand.

Bulgaria's economy expanded by 1.7% in 2011.

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Tags: Simeon Djankov, finance minister, government, Bulgaria, recession, Eurozone, employment, unemployment, direct foreign, investments, economic growth, GDP, loans, fiscal reserve, budget deficit, eurobonds, International Monetary Fund, IMF


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