Bulgaria Issues Record 4.35 Billion Euro of External Debt

Bulgaria Issues Record 4.35 Billion Euro of External Debt

The three tranches with different maturities attracted massive investor interest exceeding 17 billion euro


Main takeaways
  • Strong demand allowed for significantly more favorable terms compared to the initial parameters.
  • The deal has been assessed excellently prepared and executed, with perfect timing.
  • The debt operation provides funding for refinancing upcoming maturities and covering budget deficit for the year.

Following investor meetings on August 27, Bulgaria successfully issued a record 4.35 billion euro (8.5 billion levs) of external debt the next day, marking the largest debt issuance in its history. The issue comprised three tranches with different maturities, and its arrangers-BNP Paribas, Citi, ING, and UniCredit-recorded significant investor interest. Total orders exceeded 17 billion euro, which allowed the final terms to be significantly more favorable compared to the initial parameters.

"The largest debt transaction in Bulgaria's history. Excellently prepared and executed with perfect timing, amid an extremely uncertain domestic political situation and just before the 1.493 billion euro maturity on September 3. Also, before the European Central Bank (ECB) and the Federal Reserve (Fed) meetings on September 12 and 18. Investor sentiment was clear, with orders exceeding 17 billion euro, and the offer was oversubscribed nearly four times. Spreads were reduced by 30-35 basis points during the transaction, and it was finally executed within normal premiums of 10-20 basis points over the current market rate," commented the Head of Debt Instruments at Sofia-based Deltastock brokerage Martin Tarpanov.

A 3-in-1 offer

The main details of the three planned tranches were announced as early as August 27. The following day saw the release of the initial pricing thoughts, where the issuer sets minimum expectations, followed by the first results.

For the 8-year euro-denominated bonds maturing on September 5, 2032, the initial morning rate was MS (mid-swaps) + 165 basis points (bps). At that morning's rates, this corresponded to a yield of around 4.10-4.15%. However, by midday, orders for this tranche exceeded 4.6 billion euro, which allowed the target to drop to MS+145 or around 3.95%. By the close, orders surpassed 6.6 billion euro, and the final decision was to place 1.75 billion euro of these securities at MS+135 bps, corresponding to a yield of 3.85-3.90%.

For the 20-year euro-denominated bonds maturing on September 5, 2044, the progression was similar: the initial indication was MS + 220 bps, or a yield of around 4.70%. Orders first surpassed 2.8 billion euro and then 3.9 billion euro, and the final deal was closed at MS+190 (around 4.4%), with an approved amount of 1.25 billion euro.

The third offer comprised 12.5-year dollar-denominated bonds maturing on March 5, 2037. Here, the base rate was the yield on 10-year U.S. Treasuries, with a premium of 170 bps, corresponding to approximately 5.50%. After orders exceeded 6.8 billion dollars, there was a 35 bps reduction to around 5.15%. The final decision was to place 1.5 billion dollars (just over 1.35 billion euro) in these securities.

Bulgaria has not issued dollar-denominated debt for over 20 years, despite demand for it, with other CEE countries like Poland, Hungary, and Romania frequently turning to such instruments. "The strong interest in the dollar tranche shows that Bulgarian debt is entering a new niche within a highly diversified and deep investor base," commented Tarpanov.

These results were not final, as the exact pricing was determined on August 28, and the Ministry of Finance announced the official results on August 29. As a result, the final yields were 3.823% for the 8-year bonds, 4.413% for the 20-year bonds, and 5.192% for the dollar-denominated issuance. The significant interest indicates that despite its political turbulence, Bulgaria remains an attractive issuer-low in debt, with stable public finances, and a prospect of joining the eurozone.

Filling the treasury

The debt transaction occurred under some time pressure, as a 1.493 billion euro (2.9 billion levs) bond issue was to mature on September 3, creating the risk that the upcoming payment would have to be covered by the government's fiscal reserve. According to the weekly balance sheet of the central bank's Issue Department, the government's deposit at the Bulgarian National Bank stood at 8.5 billion levs as of August 23. The withdrawal of 2.9 billion levs for the maturity payment, together with over 1 billion levs needed for pension payments at the beginning of September, could have depleted the reserve to critical levels.

Since the beginning of the year the Ministry of Finance has raised 1.7 billion levs in fresh debt on the domestic market. Last week's bond issuance on international markets has brought the total amount of new debt issued in 2024 to nearly 10.2 billion levs. The amount is close to the maximum for new debt issuance in the 2024 budget set at 11.7 billion levs but this ceiling does not necessarily have to be reached.

Main takeaways
  • Strong demand allowed for significantly more favorable terms compared to the initial parameters.
  • The deal has been assessed excellently prepared and executed, with perfect timing.
  • The debt operation provides funding for refinancing upcoming maturities and covering budget deficit for the year.

Following investor meetings on August 27, Bulgaria successfully issued a record 4.35 billion euro (8.5 billion levs) of external debt the next day, marking the largest debt issuance in its history. The issue comprised three tranches with different maturities, and its arrangers-BNP Paribas, Citi, ING, and UniCredit-recorded significant investor interest. Total orders exceeded 17 billion euro, which allowed the final terms to be significantly more favorable compared to the initial parameters.

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