* Czech Dep Finmin Janota says spreads too wide for
eurobond, no need to issue at any cost
* Janota says govt strategy sees raising short-term lending,
focusing on domestic market
* Ralatively high yield euro issue could damage domestic
market
(Adds quotes, analyst, details)
By Jana Mlcochova and Jason Hovet
PRAGUE, Feb 6 (Reuters) - The Czech Republic will not rush
with its planned eurobond issue because it would be too costly
and could undermine the domestic debt market, Deputy Finance
Minister Eduard Janota said on Friday.
Janota told Reuters in an interview lead managers appointed
for the planned euro-denominated issue -- Barclays Capital,
Deutsche Bank and Ceska Sporitelna -- offered a five-year
benchmark issue at around 5.5 percent, some 150 basis points
over domestic bonds.
"We say that this amount is too high for us; we don't need
to issue at any cost," he said.
Janota said he saw solid demand on the domestic bond market
to finance the government's borrowing needs, and the ministry
could boost the amount of short-term treasury bills it issues,
which is less than a fifth of its current borrowing.
He added the government had a 70 billion crown ($3.20
billion) cash cushion, partly thanks to a narrow deficit last
year.
International debt markets have seen a rush of new issues
mostly from euro zone members borrowing to fund stimulus
packages needed to fight recession in Europe, leading to more
competition for investors' funds.
"If they are sure they will find sufficient demand on
domestic market than it makes sense not to issue a eurobond at
any price," said Anne-Francoise Bluher, fixed income analyst
with Komercni Banka.
"The bigger problem is the government's gross financing
needs are likely to be bigger than initially planned."
The Finance Ministry has worked out several versions of the
state budget with the most pessimistic assuming economic growth
of 1 percent and a central state budget gap at 73.3 billion
crowns.
Janota said his team was now also working on a version that
expects a 2 percent contraction for this year.
EUROBOND MARKET JAM
Poland priced a five-year Eurobond last month at 300 basis
points over mid-swaps, a sharp rise from 60 basis points at a
placing last year. Euro zone member Slovenia priced a 1 billion
euro three-year bond at 165 basis points over swaps last week.
"I think we are far closer to the Slovenians than the
Poles," Janota said, adding a fair price would be under 200
basis points over swaps.
"This is my wish, but if it does not happen, it does not
happen, (and) we will issue at home."
The Czechs sold a eurobond last year at 25 basis points over
swaps, and Janota said issuing a Eurobond at too high a price
could hit domestic bonds.
"There are talks but I don't know when and how much we will
(issue)... and we do not want to do it also because that if we
issued at any costs, we would spoil the domestic crown market,"
Janota said.
"Today they (lead managers) say... that for us the credit
default swap would be at 250. And we basically interrupted the
talks then."
But the government may have to accept the unfavourable
market conditions in the end if it sees the need to borrow at
the end of the year.
"If the situation was bad then at the end of the year we
will have to accept some higher (spreads) but not now," he said.
Should the ministry go ahead with the issue, Janota said he
was looking at a 3-5 year issue. The Czech Republic has a 'A'
rating from Standard and Poor's.
The Czechs issued a new floating-rate 8-year domestic bond
last October when central Europe's debt markets froze up as the
escalating global financial swept through the region.
The Czechs have held already four auctions for the floater
and plan two more in February and March along with a new fixed
rate issue.
(Editing by Andy Bruce)
