By Peter Laca
BRATISLAVA, April 14 (Reuters) - Slovakia may cancel a plan
to sell a new eurobond this year due to the global credit crunch
but such a move would not jeopardise its comfortable financing
position, the government's debt agency said on Monday.
Slovakia had planned to sell a eurobond worth 1 billion
euros in the first quarter of 2008 to continue with a strategy
to convert more debt to euros before the planned entry to the
single currency area in 2009.
It had to delay the plan as market conditions worsened and
Daniel Bytcanek, Head of Debt and Liquidity Management Agency
that sells state bonds, said chances that the sale would go
through at all were now much lower.
"The impact of the credit crunch is stronger than we had
initially anticipated. Although it is not directly related to
us, it has affected our spreads," Bytcanek told Reuters in an
interview.
"Despite the positive economic development here, the spreads
have reached levels where we do not think issuing a eurobond
would make sense, because it would be too expensive," he said.
Slovakia issued 1 billion euro eurobonds in 2007 and 2006,
aiming to create a benchmark yield curve before the euro
adoption.
"We are not saying we will not do the eurobond this year,
but the probability has significantly decreased," Bytcanek said.
"Our advantage is the treasury system, so we are not under
such pressure as some other countries which urgently need to
revolve maturing debt. We are in a comfortable position."
Slovakia has a flexible treasury system which administers
cash flow of state institutions and allows for short-term state
refinancing without borrowing on the market.
The debt agency said that despite the wider bond spreads,
Slovakia was less affected by the global financial turmoil than
other emerging markets thanks to its euro adoption plan.
Bratislava is awaiting a ruling by European Union
authorities in May on whether it is ready to join the euro zone.
Analysts said confirmation of euro adoption could prompt an
upgrade of Slovakia's credit rating, which could make the
country's debt more attractive to investors.
"Investors and the markets are extremely sensitive because
of the credit crisis," Bytcanek said.
"Confirmation of euro adoption, and an eventual rating
upgrade, would make Slovakia a more secure investment.
Investors's perception could become more positive, which should
help (to narrow) the spreads," the debt agency director added.
Standard and Poor's rates Slovakia A and it revised the
outlook to positive in March in expectations of euro zone entry.
Fitch also rates Slovakia A and Moody's has an A1 rating.
SMALLER DOMESTIC BORROWING
Investors have requested a higher risk premium in sales of
Slovak domestic bonds, but the debt agency said it could afford
to reject bids it finds too expensive.
"The demand for state bonds is lower than we had expected
this year, we had had significantly more bonds issued by this
time last year," Bytcanek said.
"The price trend is also not exactly what we would like to
see, but we are not under pressure to issue bonds, so we can
pick the best conditions," he added.
The debt agency accepted bids worth only 990 million crowns
($48.48 million) out of total demand of 2.39 billion in an
auction of 11-year, 5.3 percent state bond earlier on Monday.
Slovakia's favourable financing position is also supported
by narrowing fiscal deficit as the 2007 state budget gap of 23.5
billion crowns was almost 40 percent below the target thanks to
record fast economic growth.
Bytcanek said it now expected 2008 crown borrowing to be
smaller than the planned 50-70 billion crowns worth of bonds.
"We are not expecting extra strong demand throughout the
year, and we will probably issue slightly less than what we had
planned," he said.
(Reporting by Peter Laca; Editing by Gerrard Raven)
