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ÁKK to offer primary dealers domestic eurobonds

Hungaryʼs Government Debt Management Agency (ÁKK) will start offering primary dealers domestic issues of eurobonds at auction on a quarterly basis from next year, Minister for National Economy Mihály Varga said on Tuesday, as reported by state news wire MTI.   

Hungaryʼs presence on new "exotic" debt markets is not a priority for next year, but the ÁKK has been asked to plan a Japanese issue to replace a samurai bond that matured in 2017, Varga said. Hungaryʼs JPY 25 billion (HUF 58.7 bln) ten-year samurai bonds matured in October. 

Varga said the governmentʼs interest expenditures could fall under 2% of GDP next year. The decline in FX debt to around 22% of state debt, as well as the larger share of debt held by domestic investors, mean the state is no longer at the mercy of the fickle mood of international money markets, he added. 

Varga recalled that the ÁKK refinanced USD 1.2 bln of dollar bonds maturing in 2018-2023 with the issue of a low-interest ten-year eurobond in the autumn. If market circumstances allow it, the government could try a similar move next year, he added. 

Debt management outlook

A debt management outlook presented at the press conference shows that the ÁKKʼs gross FX debt issuance is planned at EUR 1.4 bln, EUR 0.9 bln under planned FX redemptions of EUR 2.3 bln. The gross issues include EUR 1.0 bln of international FX bonds, EUR 200 million of domestic FX bonds, and EUR 200 mln of FX loans. 

The FX issues account for just 5% of total planned gross issuance of HUF 8,840 bln. The gross issuance includes HUF 4,700 bln of securities targeted at retail investors, as well as HUF 2,200 bln of bonds and HUF 1,156 bln of discount T-bills sold at auction to primary dealers.

Debt redemptions are set to amount to HUF 7,397 bln next year. In addition to the EUR 2.3 bln (HUF 699 bln) of FX debt, the redemptions include HUF 4,117 bln of retail securities, HUF 1,121 bln of bonds and HUF 1,052 bln of discount T-bills.

Net debt issuance is planned at HUF 1,443 bln, with the retail security stock set to rise by HUF 583 bln, while the bond stock climbs HUF 871 bln and the T-bill stock HUF 103 bln. Net issuance of forint loans is set to reach HUF 155 bln. 

The ÁKK said that the outstanding stock of T-bills "can be increased rapidly if needed, providing extra financing reserves."

ÁKK CEO György Barcza said the agency had originally targeted net issues of retail securities of HUF 583 bln for this year, but had raised the mark to HUF 1,700 bln to cover pre-financing for European Union-funded projects. 

The ÁKK noted that the balance of EU transfers and other financing needs are considered to be part of liquidity management. 

Hungaryʼs central government deficit, calculated on a cash-flow basis, is targeted at HUF 1,361 bln for next year, MTI noted.