Exclusive-Romania to reduce the supply of Eurobonds, net issuance in 2023

By Luiza Ilie

BUCHAREST – Romania will reduce its foreign debt issuance target for next year by tapping into EU funds and low-interest loans, while a lower budget deficit will reduce its overall net issuance, the finance ministry’s treasury chief told Reuters on Friday.

The European Union state has become a fixture in overseas markets, borrowing both euros and dollars four times this year, most recently in September.

“Nowadays an issuer has much shorter windows of opportunity which require flexibility,” Treasury chief Stefan Nanu told Reuters in an interview.

Romania has sold about 8 billion euros ($7.80 billion) of an external debt target of 10 billion euros for this year. Nanu said he was not ruling out another problem pending market conditions, although the ministry’s hard currency funding cushion is high enough to allow the Treasury to go without.

Next year, debt managers will rely on EU recovery funds and low-interest loans from international financial institutions to reduce their foreign issuance target to 7-8 billion. euros or even less if the domestic retail market maintains its growth rate and the share of foreigners holding domestic debt has increased.

“The focus of Eurobond is variable, depending on whether opportunities on other financing instruments materialize,” Nanu said. “The idea is to lower supply a bit to reduce the pressure on credit spreads, which are inflated by high supply, not justified by the outlook for credit risk fundamentals.”

Fitch Ratings, Moody’s and S&P Global Ratings place Romania in their lowest investment rating. Analysts expect economic growth to slow from 4.5% this year to 2.7% in 2023.

Romania’s gross financing needs for 2023 amount to 142.6 billion lei ($28.18 billion), about 9.4 percent of gross domestic product, Nanu said, compared to 146 billion lei this year.

The government will aim for a consolidated budget deficit of 4.4% of GDP compared to the estimated 5.8% this year, which in nominal terms means that net issuance will fall by around 13 billion lei ($2.57 billion).

“Fiscal adjustment is key to reducing pressure on yield curves,” Nanu said before meeting with investors next week.

Domestically, Nanu said retail bond buyers beat expectations to account for about a fifth of domestic financing. He also expects the share of foreign holdings in domestic debt to fall from 16% at the end of July as the central bank maintained the pace of interest rate tightening this month.

Nanu also said that the ministry is open to private placements through its medium-term notes (MTN), to diversify its investor base, and was considering transactions in yen or yuan.

“We are not ruling out any discussions. We told our MTN dealers, we can talk about private placements on a case-by-case basis depending on size and price.

Nanu also said the ministry was working with the World Bank to finalize a framework for green bonds next year.

($1 = 1.0263 euros)

($1 = 5.0605 lei)

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