BUDAPEST: Investors flocked to Hungary's $2 billion 10-year bond issue on Monday leaving it heavily oversubscribed, an appetite which will help the government cover its foreign currency debt needs until elections in April.
The bonds attracted orders worth more than five times the amount to be issued, with the yield set at 325 basis points over US Treasuries, Thomson Reuters news and analysis service IFR said.
That is below the 345 point spread at the country's last 10-year dollar bond issue in February, and is also well below the initial price thoughts of 350-360 basis points early in the day.
Hungary, whose debt is rated below investment grade, raised $3.25 billion from dollar bonds in February, demonstrating that it was able to fund itself even though it had rejected advice from the International Monetary Fund on policy.
The government has been often criticised by investors and international organisations for unconventional policies that boosted taxes on banks and other mainly foreign-owned sectors.
"The bond issue shows that even if the US Federal Reserve starts to taper its economic stimulus (next year), the government has secured revenues to repay debt," said Zoltan Torok, an analyst at Raiffeisen in Budapest.
The bonds could start trade at a higher price in the secondary market, said Budapest Fund Management portfolio manager Gergely Szabo Forian.
"There was robust demand, in favourable market sentiment even though Hungary's rating is below investment grade, investors saw upside in the bonds," he said.
"Another question is now that the financing is secured, the temptation may grow for decision makers to pursue unpredictable policies before the elections," he added.
The government has postponed a decision on a planned scheme to help troubled foreign currency borrowers. It has not detailed its proposal yet, but any scheme could increase the costs of heavily taxed banks.
Austria's Raiffeisen did not rule out on Monday an exit from Hungary, where its banking unit made a loss of 174 million euros ($234 million) in 2012 and may face further losses if new laws to help foreign-currency borrowers are passed.
The dollar bond sale prefinances a one billion euro bond expiry in January. After that the next foreign bond expiry, worth 500 million pounds ($800 million), will come in May.
Hungary has negative debt rating outlook at both S&P and Moody's, who respectively rate its long-term sovereign debt at 'BB' and 'Ba1', while Fitch rates Hungary BB-plus with a stable outlook.
Hungary's debt burden is below average European Union levels, but is the highest in central Europe, and rating agencies have cited low investment levels and fragile economic prospects as the country's key risk factors.
Monday's bond issue came on the heel of last week's figures which showed 1.7 percent annual rise in the country's economic output in the third quarter, nearly double the 0.9 percent expansion analysts had forecast.
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