Hungary could issue a foreign currency bond even before it reaches agreement on a new loan with the EU and the International Monetary Fund as long as market conditions prove favourable, the head of debt agency AKK said last Thursday. The country's conservative government is still deep in dispute with Brussels over a raft of controversial legislation, blocking talks on a new financing deal which Budapest needs to shore up market confidence and bring down high borrowing costs.
Still, domestic bond yields have fallen back from highs around 11 percent reached in January, and holding off with traditional first-half foreign currency sales would risk missing out on a positive tone to global markets that may not last. Chief Executive Istvan Torocskei said successful foreign issues by contemporaries including the Czech Republic, Poland and Romania showed conditions were favourable due to the huge extra funds pumped into markets by major central banks.
"As time passes, similarly to other issuers, it is reasonable for us as well to go out to the foreign currency (debt) market sooner or later," he said in an interview. "We are continuously looking at possibilities, keeping in touch with dealers and investors. It seems certain that the market is now very suitable for a new issue."
Asked if Hungary could tap international markets before it reaches agreement with the IMF and EU, he said: "It primarily depends on market conditions. We have always been and are open to favourable opportunities. It can't be excluded and we never want to exclude the possibility of an issue." Torocskei said that if Hungary decided to issue a foreign currency bond, it would likely be in dollars. It needs to roll over 4 billion euros in foreign currency debt this year, including repayments of an earlier IMF loan.
Torocskei said yields on Hungarian government debt have decreased but were still very high in international comparison, while the forint was still relatively weak. "Based on textbooks, it could seem a very good investment that you can get a very high yield along with a weak forint."
Yields of Hungary's domestic bonds have come down to 8-9 percent and foreigners' holdings have hit record highs. But there remains significant doubt over the fate of the talks on aid given the row over legislation which the EU says hurts the independence of the central bank and judiciary. Torocskei said that Budapest genuinely wants to come to terms with the EU and get the aid talks going.
"I'd like to stress that we do not want to continue the Turkish practice (of playing for time), this idea has not even come up ... The Hungarian government wants to reach agreement with both the EU and the IMF." He said reaching a deal before the end of June was "in everybody's interest."
He said that besides dollar bonds, Hungary was looking at alternative financing options this year, such as issuance in rouble or in Japanese yen, while euro-denominated bonds were of course also a possibility. But he said a stronger forint and lower interest rates would benefit the economy. "I believe that for the country it would be good if the euro/forint was at around 270 and I'd like to see rates below 6 percent, this is just my wish ... I am not a member of the Monetary Council but I'm sure they will be able to reduce rates only very cautiously.