Government launched EUR 1bn in new bonds, more expensive USD debt bought back

HUNGARY - In Brief 04 Oct 2017 by Istvan Racz
Economy minister Varga announced tonight that the Hungarian state has completed the buy-back of USD 1.2bn of dollar-denominated bonds with relatively short remaining maturity, and it has issued a new euro-denominated bond in a total amount of EUR 1bn. The minister also said that financing the government's debt has become cheaper as a result of this transaction.The Ministry's statement was rather short on the details, so right now we only have preliminary information from Reuters and Portfolio.hu. According to these sources, ÁKK's indicative pricing was 125bps over the mid-swap rate, which was later reduced to 110bps, meaning 2% yield or slightly less in case of strong demand. On the buy-back side, Reuters reported earlier today that the ÁKK eventually issued a buy-back offer on five dollar-denominated bonds out of a total of seven series with maturities between 2018-2024, carrying yields between 4-6.375%. More details have been promised to come tomorrow.Significance: Ever since Hungary got upgraded to investment grade by the three big rating agencies, the Economy Ministry has been planning to launch a new benchmark euro-denominated bond, following a six-year break in euro issues. However, the MNB has always been opposed to the idea, in pursuit of lowering the FX-share of government debt and limiting the size of official FX reserves. Finally, they have come to a meaningful compromise. The transaction announced today will establish a new borrowing benchmark, avoid the problems seen by the MNB, save interest cost, lengthen the maturity of existing debt, and it appears to be quite attractive from the point of view of the current EURUSD exchange rate.

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