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UPDATE - Government Debt Management Centre plans total net issue of HUF 643bn

One of the main aims of the 2012 issue plans of the Government Debt Management Centre (AKK) is to achieve full-scale market financing, AKK said on Thursday.

Next year’s net financing requirement is expected at HUF 674bn, against which AKK plans net market issue of HUF 643bn.

AKK plans to issue HUF 613bn, or 95%, of the net issue on the forint market.

The government plans no net foreign-currency issues in 2012; the planned €4bn in market-based foreign-currency issue and the projected €800m long-term project financing borrowing will be used to refinance the HUF 4.8bn in expiring foreign currency maturities.

Total gross issue is expected to decline 7% from 2011 to around HUF 4,589bn, with forint issues making up 69% and foreign-currency issues 31%.

When drawing up the financing plan, AKK reckoned that investor sentiment in 2012 will be like it has been this year, AKK deputy CEO Laszlo Andras Borbely said, presenting the issue plan at a press conference on Thursday. "If that proves to be the case, the financing plan will be achievable," he added.

"We do not expect to see panic-selling on the market as Moody’s rating decision was not followed by such," Mr Borbely said, speaking of yesterday’s Standard & Poor’s downgrade of Hungary’s sovereign rating.

At the end of November, a similar move by Moody’s was followed by a rise in government securities yields, but no substantial sell-off by foreign investors took place, Mr Borbely said. Foreign investors were aware of the risk of a downgrade, as all three major credit rating agencies had had a negative outlook for Hungary’s rating for a longer period. A large part of Hungarian government securities are largely held by high-risk, higher-yield, emerging market funds, he said, which are not forced to sell because of the current weaker rating.

Answering a question as to the extent to which the rating decision will make financing more expensive, Mr Borbely said it is not possible to conclude the CDS or yield premium from credit rating alone.

Speaking of the schedule for next year’s foreign currency issues, he said AKK intends to time these for the first half of the year as much as possible, just as it has traditionally done so. This, of course, will depend on market conditions, he added. He said that while talks are going on with the IMF, there is little chance for such issues.

With regard to the IMF-agreement, AKK CEO Istvan Torocskei said the market is stable, and the agreement is primarily required to provide a kind of stable background for growth. The emphasis is not on the amount, he added when asked about the planned or necessary size of the agreement.

AKK will try to maintain and increase financing reserves. Currently, available reserves from the drawn and unused part of the previous IMF-EU loan still exceed €1bn, and will grow to €1.5bn by the end of next year - after repayment of amounts lent to banks, Mr Borbely said.