Mangalia plans first municipal bond issue

Mangalia City Hall is currently in talks with Banca Comerciala Romana (Romanian Commercial Bank- BCR) and BCR Securities, trying to agree on the terms of what is intended to be the first actual municipal bonds issue in Romania ever. The bonds are estimated to reach 10bn lei.

“We are now preparing the signing of the deal with Banca Comerciala Romana. We estimate we could get the Finance Ministry’s endorsement in two months, as well,” Zamfir Iorgus, Mangalia mayor, told Ziarul Financiar. BCR and BCR Securities are the winners of the tender held by the City Hall to find an underwriter for the bond issue. The bonds in this issue will mature in two years, the red herring reads.

Zamfir Iorgus says the talks will be final in no more than three weeks, with the interest targeted by the municipality to be one percentage point higher than the one of the T-bills issued by the Finance Ministry for the population.

“We feel the market is ready for such an issue, especially since it meets almost every attractiveness criterion: short maturity, attractive interest, sound issuer and BCR as underwriter,” said Cornel Cojocaru, BCR’s spokesman.

As for the collateral Mangalia municipality has to pledge, the mayor says that the local budget reaches five million dollars a year alone, in addition to private properties of the municipality, as well as plenty of land and buildings.

Municipal bonds are securities issued by local authorities, especially by those in cities, in order to attract funds from the capital market to finance investment programmes of local interest.

According to the National Securities Commission (CNVM)’s classification by liquidity, these securities are the lowest risk ones (risk factor 1), second only to T-bills (risk factor zero).

Several unsuccessful attempts to release municipal bond issues on the market, the international one included (Sinaia, December 1996) have been made in the past, but the issuers did not get the necessary endorsement from the Finance Ministry.

The local authorities in other former socialist states, however, have been issuing municipal bonds ever since 1995.