Alba Iulia issues 20-year bonds

The municipality of Alba Iulia is to start a public bond offering over the next few weeks that is likely to set two new records for Romanian fixed-income instruments.

Alba Iulia is planning to borrow from the capital market over a period of 20 years, the highest maturity for fixed-income instruments to be issued in Romania since WWII. The offering will also be the largest issue of municipal bonds, which will see the local council borrowing 24.5 million RON (6.9 million euros). The Alba Iulia bonds are scheduled to be issued in three tranches: one this year, and two next year.

Romanian bond investors have so far been reluctant to buy bonds with such high maturities due to the extremely low liquidity on market for these instruments. In developed capital markets, demand for these types of bonds comes mainly from pension funds, which are currently lacking in Romania.

This means the maximum maturity terms for government bonds will lag behind those of municipal bonds, given that the first government bonds with a maturity of more than five years were issued as late as this year. The largest maturity term for government bonds issued so far is 15 years.

The longest life span of a municipal bond issue is that issued by Timisoara Local Council, which issued six-year bonds. Timisoara also released the largest municipal bond issue so far, worth 20 million RON (5.6 million euros).

The interest rate for the Alba Iulia bonds will be indexed periodically, depending on the rates on the monetary market, and will equal the average of the active and passive interest rates on the inter-banking market (BUBID and BUBOR) plus 1.5 percent. After Romania adopts the euro, interest on the bonds will be indexed against the EURIBOR, the benchmark rate for the European single currency.

The offering will be handled by BCR Securities, the brokerage arm of BCR, following approval from the CNVM.