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Slovak Republic Issues 12-Year Eurobond Worth EUR 1.5 Billion

Published: January 15, 2015; 19:00 · (FriedlNews)

Slovakia’s first syndicated EUR transaction of the year attracted a total demand from more than 200 investors which reached almost EUR 5.5 billion.

Slovak Republic issues 12-year benchmark Eurobond worth EUR 1.5 billion / Picture: © Flickr

Erste Group Bank AG through its subsidiary Slovenská sporiteľňa successfully participated in the syndicated issue of a 12-year Slovak government bond worth EUR 1.5bn.

The bond issue with a coupon rate of 1.375% p.a. will mature in January 2027.

The Slovak Republic (“Slovakia”), rated A2 stable /A positive /A+ stable (Moody’s/S&P/Fitch), acted through the Ministry of Finance and was represented by the Debt and Liquidity Management Agency (ARDAL).

The issue was marketed on January 13th with Initial Price Thoughts in the MS + low to mid 60s. Robust investors’ demand allowed for a revision of the price guidance to MS +57bps (+/-1bp) from initial price guidance of MS + 60 bps area. The order book closed with a total demand of EUR 5.5billion and over 200 investors from over 30 countries participating.

The size and high quality of the orderbook allowed Slovakia to price the EUR 1.5 billion new issue at the tight end of the revised price guidance at MS +56bps.

The final pricing also represents the lowest yield ever achieved by Slovakia for a long-term Eurobond.

“We are pleased to see such unprecedented interest in this year’s first syndicated transaction out of the CEE region. Total demand for the issue reached EUR 5.5 billion and the transaction ran very fast and smoothly thanks to robust investors’ interest. The achieved spread of 0.56% p.a. above the (mid) interest rate swap or the absolute yield of 1.442% p.a. are a record-low for Slovakia at the given maturity“, said Tomas Cerny, Managing Director DCM CEE origination at Erste Group.

The transaction benefitted from a highly granular order book with 89% of the issue placed outside of Slovakia with international investors from over 30 countries, in particular from Germany, Austria, the Czech Republic and the Benelux countries. The proceeds of the transaction will be used for rolling over maturing state debt. The high quality and well diversified final orderbook demonstrates investors’ positive perception towards the high credit quality of the Slovak Republic and its strong ability to refinance in the international capital markets. The success of the issue is supported by Slovakia’s position. The Eurozone country with its strong and healthy banking sector is expected to grow faster than the Eurozone average (2.5% vs. 1.1% in 2015). Furthermore, Slovakia’s public debt is among the lowest in the euro area (2014 outlook: 54% of GDP). The country reduced its public deficit below 3% of GDP in 2013 and was excluded from the excessive deficit procedure in 2014.

According to analysts of Erste Group and Slovenská sporiteľňa, along with further issues down the line, the new issue will help Slovakia to rebuild its cash buffer after it has been reduced before the year-end.

“Due to imperfections in the local debt brake rule, the debt agency was motivated to reduce debt issuance and intensify buy-backs before the year-end. The debt agency bought back Slovak government securities worth more than EUR 1bn in 4Q 2014. Slovakia is now in very comfortable position. Besides next week's bond redemptions, for which it has already pre-financed, Slovakia only has roll-over needs of less than EUR 1bn for the rest of the year”, said Juraj Kotian, Head of CEE Macro/FI Research.

Summary:

• Strong investor interest for Slovakia’s first syndicated EUR transaction of the year: total demand of more than 200 investors reached almost EUR 5.5 billion
• The final pricing at the tight end of the revised price guidance at MS +56bps represents a record-low yield ever achieved by Slovakia for a long-term Eurobond
• Slovakia is in a strong position with roll-over needs of less than EUR 1bn for the rest of the year