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Analysts consider Hungary euro bond timing, pricing good

Analysts interviewed by MTI said the timing and the pricing of Hungary's €1 billion seven-year eurobond issue were good, thereby completing the Government Debt Management Centre's €4 billion issue plan for this year.

The bond was priced at 270bp over mid-swaps. The bonds will expire in January 2019.

The timing of the bond was good because there is now money on the market, Dávid Németh of ING Bank said, adding that the Fed will end its USD 600 billion bond purchase program at the end of June, which could change market conditions.

Zsolt Kondrát of MKB Bank expressed a similar view, saying that "it is an important message to investors that the financing of Hungary's foreign currency-denominated debts is sorted for 2011."

Hungary issued a combined $4.25 billion of ten- and 30-year dollar bonds in March and April. The USD issues, worth about €3 billion, left about €1 billion to meet the annual foreign bond issue plan. Kondrát added that the eurobond issue followed the dollar bonds relatively quickly.

Kondrát also pointed out that the Government Debt Management Centre (AKK) is also HUF 230 billion ahead of schedule with the forint financing. Confirming this, Németh said AKK is visibly trying to replace short bond maturities with longer-term ones.

As regards pricing, both analysts said the 270-bp premium was a good one, which more or less reflects Hungary's 5-year CDS premium of 240 basis points. This CDS premium equals Spain's premium, while Turkey's premium is now 150 basis points and Poland's is 140bp.

Although AKK has not yet specified the annual interest payment coupon, Németh said that will be around 6%. (The estimate is based on the 270-bp premium and the current seven-year euro fixing of 3.43%.)

The analysts also noted that AKK has foreign currency reserves of €3.5 billion, kept at the National Bank of Hungary, which, although this amount is planned to be spent on reducing the government debt until 2014 (as indicated by the government in the Convergence Program), could serve as a kind of reserve should there be any problems hindering foreign currency financing from 2012.