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Dollar bond success softens financing pressures, downgrade less likely, says City

The successful issuance of a USD 3 billion 10-year and a USD 0.75 billion 30-year bond "significantly alleviates" the external financing pressures for Hungary, and its credit ratings are now less likely to be downgraded, London-based emerging markets analysts said on Monday.

Barclays Capital, a major City-based investment banking group, said in a research note titled "Hungary credit: So far so good" that with a total issuance target of EUR 4 billion in 2011, "it now seems realistic" that the Hungarian government can meet its "sizeable" external financing needs with one additional issue in international debt markets later this year.

Hungary's longer-term challenges remain, debt levels continue to be high and future debt dynamics are likely to depend heavily on the implementation of the fiscal reform program as outlined by the Hungarian government in early March. However, immediate supply pressures have receded following the new issues, and negative rating action now seems "much less likely", as evidenced last week by the affirmation of Hungary's "BBB minus" rating by Standard & Poor's, although the rating agency left the outlook negative, Barclays Capital said.

"Hence, we think that a more balanced view on Hungary cash credit over the next few weeks is justified, and we upgrade our underweight stance to neutral in our Global EM credit portfolio".

"If there are still doubts about Hungary's shorter-term liquidity position, the USD 3.75 billion in new issuance, together with the windfall from pension assets, should have finally eroded them. Hungary's challenges are longer-term debt dynamics rather than shorter-term liquidity constraints, in our view", Barclays Capital's London-based emerging markets analysts said.