Bulgaria sells domestic debt

SOFIA – Bulgaria announced yesterday it would launch in two weeks its first euro-denominated domestic bond to liven up its illiquid local debt market and lure foreign investors ahead of a European Union entry seen for 2007. The new 2010 bond of between 100 million and 150 million euros, which will be auctioned in parts over the next 13 months, is also part of the government’s strategy to raise its domestic debt, while reducing the foreign debt burden. Investors welcomed the new issue, saying it would most probably be snapped up by both domestic and foreign players, banking on convergence with EU debt as the Balkan country gets closer to accession. Deputy Finance Minister Krassimir Katev told Reuters the first part of the bond of between 25 million and 50 million euros would be auctioned on February 18. It carries an annual interest rate of 5.75 percent with annual coupon payments. «We hope the new bond will attract foreign investors and we already have indications of foreign interest… We’ll rely mainly on the good reputation of our foreign debt,» said Katev. «The new issue is part of our long-term strategy to develop the domestic debt market and gradually raise the share of the domestic debt (of total debt), which currently is only 11.6 percent. We plan other similar issues in future,» he added. Bulgaria’s government domestic debt stood at 2.112 billion levs ($1.179 billion) at end-2002, compared with a government foreign debt of $8.525 billion at end-2002, Finance Ministry data showed. The maturity of the new bond, set for May 24, 2010, is linked with the government’s expectations that by that time Bulgaria would be an EU member and would have adopted the single currency, Katev said. Investors view Bulgaria, Romania and Croatia, which hope to join the EU in 2007, as a second-wave convergence play but currently rely only on their foreign currency bonds because domestic debt markets are not liquid and attractive enough. But analysts said Bulgaria’s new bond would draw foreigners. «There will be foreign interest. There is a shortage of debt in the region and people still want to get exposure to the credit,» said Timothy Ash of Bear Stearns in London. «Perhaps people will still favor external debt, because they are more used to it but there are investors looking at the region’s (domestic) debt… The Balkans is a very interesting place for many London-based investors at the moment,» he added. Convergence funds have already been benefiting from falling yields of foreign and domestic debt of Eastern European frontrunners Poland, Hungary and the Czech Republic, set to become EU members next year. Traders said Bulgaria’s new bond was good news for domestic players, such as pension funds and