Romania is releasing a bond issue on the international capital markets this week, but, in an unexpected move, the Finance Ministry has already announced the annual coupon rate it expects to pay for the seven-year eurobonds: 6.5% in euros.
“The coupon for the new issue may be 2% smaller than the level obtained for the last issue (8.5% in May 2002),” reads a Finance Ministry release.
However, the yield of the bonds that mature in 2012 does not exceed 5.85-6.04%, so that the coupon that was most unusually disclosed by the Finance Ministry includes a considerable premium. The bonds maturing in 2008 have reached a 5.09% yield. Moreover, just before the release, the government approved the issue’s value to be increased from 500 to 700 million euros.
The official explanation? “The more an issue is worth, the bigger its liquidity is – there is interest in trading it on the secondary market,” says Finance minister Mihai Tanasescu, after having said for two months that Romania did not need more than 500 million euros. Furthermore, he now says the loan’s higher value will “inevitably” lead to gaining a “liquidity premium” in the trading price, reflected in the improved trading yields. However, he stays mum over the strategy aimed at cutting the budget deficit financing from foreign sources, to match the increase of loans from the domestic market, announced at the beginning of the year.
It is certain that the original estimates of the Finance Ministry were turned upside-down, mainly because of the increasing rates on the domestic market, after the winter decreases and, implicitly, because of the increasingly difficult budget deficit and public debt financing without compromising the accepted rate levels.