Hungary may issue or swap FX bonds after rating upgrade, analysts say

Debt

The state of Hungary could issue an FX bond or swap USD bonds for euro-denominated bonds, taking advantage of low yields on bond markets and the favorable mood following Standard & Poorʼs upgrade of Hungaryʼs sovereign credit rating to investment grade, analysts told Hungarian news agency MTI on Friday.

MTI asked analysts to comment on a statement by János Lázár, the head of the Prime Ministerʼs Office, at his regular press conference on Thursday. Lázár said that Prime Minister Viktor Orbán has initiated a review of Hungaryʼs opportunities on the government bond market following the credit rating upgrade. He said every possibility needs to be considered including again issuing foreign currency-denominated government bonds.

Hungary could return to financing FX-denominated debt expiring next year through FX issues, rather than in forints, Raiffeisen Bank analyst Gergely Pálffy said. In a less likely scenario, it could issue FX bonds to meet part of the financing needs of the Paks Nuclear Power Plant upgrade, he added. 

Pálffy said Hungarian sovereign FX bond issues could happen to a volume of EUR 2-2.5 bln even in the next six months. Tapping markets with a eurobond would make sense amid the current low yields, despite the governmentʼs stated plan to reduce FX exposure to about 25% of all debt from over 30% at present, Pálffy added.

Conditions are favorable to refinance state debt, even replacing USD-denominated bonds with euro-denominated bonds to save on costs, ING Bank leading economist Péter Virovácz said. FX-denominated bonds tend to have a longer tenor than forint-denominated bonds, which makes state debt financing more predictable, he noted. 

Hungary last tapped international bond markets with a CNY 1 bln dim sum bond in April this year. The yuan issue was the first foreign FX bond issue by the state of Hungary in more than two years.

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