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Hungary plans launch of inflation-pegged eurobond for retail investors

Debt

Hungary's Government Debt Management Agency (ÁKK) plans to launch a three-year, floating rate, euro-denominated bond targeted at retail investors, deputy-CEO László András Borbély said at a press conference on Thursday.

The paper will pay 2.5% over the average eurozone inflation rate, or around 5% at present. Borbély said the first issue of the securities was expected to take place in a few weeks. He put the planned issue around several hundred million euro or HUF 50-60 billion.
Borbély said that the bonds will not replace the issue of FX bonds in ÁKK's annual issue programme for 2012. He added that AKK does not plan to issue its next foreign bond intended for foreign investors until after Hungary reaches an agreement on a financial backstop from the International Monetary Fund and the European Union.
ÁKK is capable of financing Hungary's state debt on capital markets at present, he stressed. A new issue always depends on the situation of the market, he added. Interest on the new retail eurobonds will be paid twice a year, in June and December. The inflation rate for the peg will be Eurostat's final -- not preliminary -- inflation data, published in April and October.
Investors will not subscribe the bonds, rather they will purchase them from stocks at a determined price. If stocks are depleted, the Treasury may reoffer more bonds or issue a new series. The bonds may be redeemed before maturity at a repurchase price quoted by dealers. AKK data show sales of government securities intended for retail investors came to HUF 355 billion in the year to the middle of October.  The bond will be the first foreign-currency-denominated sovereign issue targeted at Hungarian private individuals and distributed in Hungary.
Hungary last issued a euro-denominated bond, of €1 billion, on global markets in May 2011. The seven-year bond due in January 2019 -- which was also Hungary's last issue on international markets to date -- has a 6.0% annual coupon, and was priced at 270bp over mid-swaps. Hungary has not tapped international markets this year although ÁKK's December 2011 issue plan for 2012 included gross foreign bond issues of €4 billion (and €800 million long-term project financing borrowing), designed to refinance €4.8 billion expiring foreign exchange debt. Senior officials have repeatedly said the 2012 FX bond issues were still planned and can take place after an agreement on financial assistance from the International Monetary Fund and the European Union is reached.
Foreign exchange expiries for the remainder of the year include a €1 billion bond due on November 2 and installment payments, worth about SDR 1 billion, on an IMF loan Hungary took out in the autumn of 2008, at the height of the global financial crisis.
Hungary is rated just under investment grade by all three big ratings companies: Moody's ('Ba1'), S+P (BB+) and Fitch (BB+).

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