Wednesday 16 October 2019

Slovenia seeks bond cash to buy time, avoid bailout

SLOVENIA returned to international bond markets on Thursday in search of cash needed to recapitalise its banks and stave off a bailout, resuming a bond issue it had aborted two days ago after Moody's downgraded it to junk.

The Thomson Reuters market service IFR said the small euro zone member had received more than $16bn worth of orders for a dual-tranche US dollar issue.

The country started marketing the deal at a slightly higher premium than initially intended, following a delay prompted by Moody's two-notch rating cut on Tuesday.

The final size of the transaction will be confirmed later on Thursday but Slovenia has announced that it is seeking to raise up to $3.5bn through the sale of 5- and 10-year bonds.

"This is a short term positive, it buys time, but the government cannot rest on its laurels. We need to see an ambitious reform model and Slovenia needs to change its whole economic model," said Timothy Ash, an analyst at Standard Bank.

The month-old coalition government of the tiny Alpine country of two million is struggling to avoid becoming another euro zone state in need of a bailout because of its weak banks, a rising budget gap and a declining economy.

A successful bond sale could prove a mixed blessing as it may actually reduce the pressure on Prime Minister Alenka Bratusek's government to enforce reforms quickly. Bratusek will unveil her 'stability programme' on May 9, which will then be reviewed by the European Commission.

"While a successful bond issue would help meet the financial needs this year, Slovenia will face a challenging year in 2014 in terms of further borrowing," said Otilia Simkova, an analyst at Eurasia group.

"Estimations are that Slovenia will need €5.7bn next year and by that time the government will have to convince the markets that it is trustworthy, if it wants to avoid facing the spectre of a bailout," she said.

The coalition, comprising pro-market and leftist parties, has already delayed talks on the euro zone's fiscal "golden rule", requiring cuts to the deficit. It has also postponed the announcement of a comprehensive plan to sell state assets - something successive Slovenian governments have refused to do since the country's 1991 independence.


Saso Stanovnik, an analyst at Ljubljana-based Alta Invest brokerage, said the government would have looked more credible by unveiling its reform and privatisation agenda before tapping the international markets.

"This way there is a risk that reforms might not be as fast as needed as the government might not feel pressure strong enough after having raised funds. So, the implementation of reforms could be slower than what would be hoped for," he said.

Slovenia delayed the bond sale on Tuesday after Moody's cut it to Ba1 from Baa2. On Wednesday it said it would proceed with the issue despite the cut.

The downgrade followed weeks of criticism from investors, European Union officials and analysts that Bratusek's cabinet had been too slow in revealing details of a bank clean-up and austerity measures they say are required to shrink a budget gap swollen by recession.

Slovenia's banks, most of them state-owned, are heaving under bad loans totalling around 7 billion euros, or a fifth of the total economic output. In explaining its rating cut, Moody's said bad loans in the two main banks, Nova Ljubljanska Banka and Nova Kreditna Banka Maribor, have reached 28 percent.

The government has suggested it may sell one of the three main banks, NLB, NKBM or Abanka Vipa, this year. But it remains unclear when and at what price the sale could take place, or whether the government plans to retain a controlling stake, which could deter potential investors.

Another major rating agency, Standard & Poor's, told Reuters on Wednesday it still viewed Slovenia as an investment grade country and was "broadly confident" the government would implement reforms and overhaul public finances.

BNP Paribas, Deutsche Bank and JP Morgan are the leads on the 144A/Reg S transaction.


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