Hungary may issue a eurobond again in 2017

HUNGARY - In Brief 31 Oct 2016 by Istvan Racz

---

The CEO of ÁKK, Hungary's debt management agency gave an interview to today's Magyar Hírlap, a local daily newspaper. As a brief summary, Mr. Barcza said largely the following:- He expects the government debt ratio to fall between 73-74% by end-2016. The FX share of total government debt has dropped to 26%.- He expects an upgrade from Moody's on November 4, back to low investment grade from the current Ba1/Positive rating for long term FX debt. (The market, including us, expects that, too.)- Since the latest upgrade by S&P on September 16, foreign investors' holdings of HUF-denominated government debt have risen by HUF200bn or close to 6%. However, yields have decreased only by little, as the recent upgrades back to investment risk had been largely priced in by investors already.- Once Hungary has investment grade ratings from all three leading rating agencies, there may be cases in which financing the government in FX is cheaper than HUF financing. So the issuance of some FX debt may be reasonable.- However, FX risk remains an important factor. In view of that, HUF financing must be kept as a central element of debt management at all times.- Given Hungary's €2.4bn FX debt maturing in 2017, it would be easy to issue some FX debt and to secure a further reduction of the FX share of total debt at the same time.- And finally, should the government decide to issue debt in FX next year, it would be most likely a euro-denominated bond.In sum, Mr. Barcza acknowledged that following the much-awaited upgrades by the leading rating agencies, it would make sense to launch a sizable eurobond issue, with a view to establishing a new pricing benchmark for the government, and he sugg...