London - Slovenia returned to international bond markets on Thursday in search of cash needed to recapitalise its banks and stave off a bailout, resuming a bond auction it had aborted two days ago after Moody's downgraded it to junk.
The Thomson Reuters market service IFR said the small euro zone member was seeking offers for a dual-tranche US dollar issue at a slightly higher premium than initially intended, following a delay prompted by Moody's two-notch rating cut on Tuesday.
The size of the order book has not been disclosed but it is estimated to raise about $3 billion in 5- and 10-year paper through the deal, expected to launch later today.
“This is a short term positive, it buys time, but the government cannot rest on its laurels. We need to see an ambitious reform model and Slovenia needs to change its whole economic model,” said Timothy Ash, an analyst at Standard Bank.
The month-old coalition government of the tiny Alpine country of two million is struggling to avoid becoming another euro zone state in need of a bailout because of its weak banks, a rising budget gap and a declining economy.
A successful bond sale may actually reduce the pressure on Prime Minister Alenka Bratusek's government to enforce reforms quickly.
The coalition, comprising pro-market and leftist parties, has already delayed talks on the euro zone's fiscal “golden rule”, requiring cuts to the deficit. It has also postponed the announcement of a comprehensive plan to sell state assets - something successive Slovenian governments have refused to do since the country's 1991 independence.
BOND SALE A MIXED BLESSING?
Saso Stanovnik, an analyst at Ljubljana-based Alta Invest brokerage, said the government would have looked more credible by unveiling its reform and privatisation agenda before tapping the international markets.
“This way there is a risk that reforms might not be as fast as needed as the government might not feel pressure strong enough after having raised funds. So, the implementation of reforms could be slower than what would be hoped for,” he said.
Slovenia delayed the bond sale on Tuesday after Moody's cut it to Ba1 from Baa2. On Wednesday it said it would proceed with the issue despite the cut.
Market sources told IFR Slovenia had set initial price guidance of around 5.125 percent for a five-year tranche and around 6.25 percent on a 10-year tranche. The figures represent a small premium of 12.5 basis points over the initial price guidance Slovenia had released for both tranches before the Moody's downgrade.
The downgrade followed weeks of criticism from investors, European Union officials and analysts that Bratusek's cabinet had been too slow in revealing details of a bank clean-up and austerity measures they say are required to shrink a budget gap swollen by recession.
Slovenia's banks, most of them state-owned, are heaving under bad loans totalling around 7 billion euros, or a fifth of the total economic output.
The government has suggested it may this year sell one of the three main banks, NLB, NKBM and Abanka Vipa. But it remains unclear when and at what price the sale could take place, or whether the government plans to retain a controlling stake, which could deter potential investors.
Another major rating agency, Standard & Poor's, told Reuters on Wednesday it still viewed Slovenia as an investment grade country and was “broadly confident” the government would implement reforms and overhaul public finances.
BNP Paribas, Deutsche Bank and JP Morgan are the leads on the 144A/Reg S transaction representing both new bond tranches. - Reuters