Bulgaria sells 3.1 bln euros in largest ever bond sale

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Bulgaria sold 3.1 billion euros its biggest ever debt sale on Thursday, becoming the latest emerging market to tap strong demand for euro-denominated debt stemming from the European Central Bank’s quantitative easing programme.

Sofia priced three separate government bonds at the tight end of price guidance.

It sold 1.25 billion euros of seven-year paper at a yield of 2.18 percent, 1 billion euros of a 12-year offering at 2.73 percent and a 850-million euros in 20-year bonds at 3.26 percent, Reuters news and information service IFR reported.

It was the first sale in the government’s planned 8 billion euro mid-term debt programme, needed to repay maturing debt and finance the country’s expected fiscal shortfalls in the next three years.

Demand was also strong as investors shrugged off a recent downgrade of Bulgaria’s credit rating to junk by Standard & Poor’s which following a banking crisis.

“Bulgaria’s decision to come to markets could not have come at a better time, given the lack of supply from Russia and the ECB’s monetary policy helping the markets,” said Alex Bebov, executive director at Sofia-based BAC Securities.

Last year’s collapse of Bulgaria’s fourth-largest lender, Corporate Commercial Bank (Corpbank), strained the finances of a country already struggling with weak economic growth and falling foreign investment. It remains, however, one of the European Union’s least-indebted members.

“The 20-year tranche is interesting for the market because it will be one of the longest euro-denominated bonds in CEEMEA (central and eastern Europe, Middle East and Africa),” Shahzad Hasan, Portfolio Manager, Emerging Markets Fixed Income at Allianz Global Investors, said.

“We are seeing the huge rally in core rates in the euro zone because of the ECB and I expect this to continue, so the 20-year (tranche) will benefit from this long duration.”

Corpbank’s collapse helped push Bulgaria’s deficit to 3.7 percent of gross domestic product last year.

“(Bulgaria’s)…weaknesses are obviously the structural issues, they have low growth, they have a slightly high budget deficit, but overall it’s a safe credit,” Hasan said.

Bulgaria tapped global markets last July, when it raised 1.5 billion euros in a 10-year euro bond at a yield of 3.05 percent against a backdrop of political and financial uncertainty.

The bond sales were managed by Citi, HSBC, Societe Generale and Unicredit.

They come amid a wave of euro issuance by emerging market countries looking to piggy-back on the strong demand being created as the ECB’s 1 trillion euro QE programme gobbles up the normal supply of euro bonds. (Editing by Susan Fenton and John Stonestreet)