While economic clouds have assumed a holding pattern across most of central and eastern Europe, sunlight of a kind is still visible over Slovenia. So when the country came to market with its latest benchmark bond, it had little difficulty in finding buyers.
Slovenia was always the most prosperous of the old Yugoslav republics and, while 2009 was not the greatest year for its economy and public finances, it bore favourable comparison with most of its neighbours. The country's budget deficit was 5.5% of gross domestic product (GDP), which was lower than the original official expectation of 6%). The ratio of public debt to GDP worsened to 35% from 22% the year before, but remained at a level of indebtedness that many other countries would welcome.
The Slovenian economy is highly dependent on the fortunes of the wider European economy, and in particular those of its major trading partners: Germany, Austria, Italy and France. As their economies nosedived, so did Slovenia's, registering negative GDP growth of -7%. Expectations for 2010 are in the positive range of 1% to 1.5%.
The country's bond issuance was higher than normal last year, reflecting the increase in public debt. It raised a total of €4.5bn in three separate issues - €1bn in three-year paper, €1.5bn in five-year paper and another €1.5bn in its first ever 15-year issue. It also raised another €750m in 12-month T-bills.
That makes it a relatively rare visitor to the international capital markets, and even more so this year, with lower financing needs than in 2009. It got off the mark in January with a €1.5bn, 10-year issue, carrying a 4% coupon. Before it came back again, it waited to see how Greece would fare.
It was common knowledge that Greece would need to come to market in the wake of its budget reform pact with the EU. The Slovenians made their preparations so that they could move quickly once they knew which way the market wind was blowing. What they had to decide was the tenor.
"We had two options - five years and 15 years or longer," says Boštjan Plešec, acting general director of the Treasury Directorate in Slovenia's Ministry of Finance. "Both would fit well in our maturity profile. After internal discussions we decided on five years because of the liquidity of the bond."
Since Slovenia issues less often than other members of the eurozone, Mr Plešec says it makes sense to offer the market something more liquid rather than less so. Longer-term bonds tend to end up in the hands of buy-and-hold investors such as pension funds and insurance companies.
Greece issued its 10-year bond in the first week of March. It was well received, trading well in the secondary market, and Slovenia moved swiftly into action. With Abanka Vipa, Commerzbank, RBS and Société Générale as lead managers, it launched a five-year bond with a 2.75% coupon, looking to raise €1bn.
Slovenia's last roadshow to market a specific deal was back in January 2009, but it has made several non-deal promotional visits to European capitals since, meaning there was no need for a roadshow this time around.
Italian benchmark
Portugal used to be Slovenia's closest comparable for pricing purposes but, given that Iberian country's market problems, this is no longer the case. "Now we compare ourselves more to Italy," says Mr Plešec. "It depends on which part of the curve we are issuing in - at the short end we're a bit below Italy and, at the long end, a bit above."
For this transaction, the leads went out with price guidance of 37 to 40 basis points (bps) over mid-swaps. They found a market whose mood had improved considerably after the Greek sale. The spread for the A2/AA/AA name was deemed attractive, especially once investors were told that there was no intention to increase the size beyond €1bn, and €1.8bn of orders were received within the first two hours.
The deal was finalised at the tight end of guidance, at 37bps over, and the bonds have since tightened slightly in the secondary market. Distribution held no surprises, with 47% going to banks, 37% to asset managers, 11% to pension funds and 4% to central banks or official institutions. Germany took 33%, followed by Italy (12%), Benelux (11%), Slovenia and the UK (10% each), with the remainder spread around other parts of Europe.
That concludes Slovenia's funding for the year, in the absence of surprises. "We have fulfilled our budgetary needs, and have in fact pre-financed by about €300m," says Mr Plešec.