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Varga: Hungary may tap onshore bond market in China after offshore yuan bond

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Hungary sold a three-year CNY 1 billion (€136.8 million) offshore yuan bond yesterday, and there is chance that it could issue an onshore Panda bond in China this year as well, economy minister Mihály Varga told the press yesterday, according to Hungarian news agency MTI.

With yesterdayʼs offshore bond issue Hungary has become the first country in the region to tap the dim sum market for sovereigns, Varga noted.

The issue was 2.5 times oversubscribed, he said. About 50 investors participated in the issue which was lead-managed by Bank of China Limited. Citibank N.A., London acted as paying agent.

The bond carries a 6.25% annual coupon and was issued at par, translating into a 6.25% yield, an announcement on the website of Hungaryʼs government debt management agency ÁKK shows. 

Thanks to oversubscription, the final yield was below an indicative yield of 6.5%. 

The bonds will mature on April 25, 2019. 

ÁKK said it will use the proceeds for general financing purposes.

ÁKK announced on Wednesday that it mandated Bank of China Limited to organize the issue.

Varga said ÁKK, as part of an FX-swap manoeuvre, will exchange the yuan-based debt to a euro-based one, eliminating risk from currency fluctuations.

The minister called the issue both a milestone for Hungarian-Chinese financial relations and a test for getting to know the market and establishing ties and institutional connections.

The bond issues are part of the governmentʼs policy to strengthen ties with Asian countries and also helps diversify Hungaryʼs debt portfolio, Varga added.

Varga said in December that Hungary could issue a yuan bond up to CNY 3 bln (€411 mln) in 2016. ÁKK wound up a non-deal road show in China in January in preparation for a yuan-denominated debt issue, but postponed the issue due to market conditions.

ÁKKʼs issue plan for this year includes €1 bln in FX bonds to be subscribed by international investors. 

Hungary must repay a CHF 200 mln bond in May and a €1 bln bond in July. Total FX state debt maturing this year is between €5 bln and €5.5 bln.

The yuan issue is the first foreign FX bond issue by the State of Hungary in more than two years. Hungary last tapped international bond markets in March 2014, issuing $1 bln 4%-coupon five-year bonds and $2 bln ten-year bonds bearing a 5.375% annual coupon. 

The March 2014 issue happened just before the National Bank of Hungary launched its so-called self-financing program that aims to reduce foreign and FX exposure by increasing the local and HUF share in government issuance and debt, including refinancing maturing FX-denominated debt through forint issues.

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