24.11.2015

In connection with comments and publications in the media related to the reopening of the 20-year issue of Eurobonds with maturity 26 March 2035 and the choice of an operation of the type private placement of debt, the Ministry of Finance states that as an issuer applies, based on a precise analysis, a flexible approach when choosing debt markets, instruments, maturity and currencies while taking account of the market situation for issuing, under the best possible for the country conditions and within the approved in the annual Law on the State Budget limits of government debt.

By Decision No 83 of 9 February 2015 the Council of Ministers mandated the Minister of Finance to take all necessary actions to implement the medium-term programme for GS issue, set up by the ratified by the National Assembly on 25 February 2015 Dealer Agreement, Fiscal Agency Agreement and Deed of Covenant.

The analysis of the domestic and international market conditions showed that the reopening of the 2035 issue, as an alternative of financing through GS on the domestic market, would contribute to smoothing the repayment profile of the government debt and to lowering the risk of refinancing in 2018. The increased volume of the external issue increases its liquidity on the secondary market which will make our country more recognizable by investors issuer and will set up a more reliable benchmark at the long end of the debt curve respectively. Also in the event that in 2016 new Eurobonds are offered with original maturity of over 10 years, the higher volume of the 2035 issue will facilitate the positioning of the future yield.

When the 2035 issue was launched the add-on of the interest spread was 245 b.p., at the time of the first reopening on 13 November - 250 b.p. or only by 5 b.p. higher than at the time of the launch. The yield at the reopening was 3.987% (Mid swap spread of 250 b.p.), while the yield on the secondary market at that date was 3.80% (МS+239.1) or the New Issue Premium was by 11 b.p. above the Mid swap. The yield at the reopening is comparable with the yield on the issued on 29.10.2015 by the Republic of Romania 20-year Eurobonds (3.93% and Mid swap spread of 245 b.p.), which, contrary to those of the Republic of Bulgaria, have an investment rating by Moody's, Standard & Poor's and Fitch. After the launching the yield of the Romanian 20-year Eurobonds decreased from 3.93%  (MS+245 b.p.) to 3.74 % (МS+234 b.p.) on 13.11.2015, i.e. the resulting yield decrease on the secondary market of 11 b.p. reflects the so-called New Issue Premium, which investors require for acquiring securities on the primary market. 

The interest coupon on the 20-year Bulgarian Eurobonds is 3.125% and is lower than the interest coupons of the long-term GS issued by 2015. For comparison, in December 2013 the MoF placed a 15-year loan under the German legislation (Schuldschein) to the amount of EUR 156 million at an annual interest rate of 4.60%, the 10-year tranche was at 4.10% (103.5%) and the 7-year - at 3.339% (EUR 30.5 million).  Those transferable loans were privately placed as well. When the 20-year Eurobonds issue was reopened no remuneration had been paid to Goldman Sachs.

In addition we would like to underline that the pricing process when placing securities in the international markets is not determined on a competition principle, as the auctions in the domestic market, but includes the definition of sovereign spread to the Mid swap spread. A New Issue Premium is added to this value, which depends basically on the credit rating of the issuer and the situation and expectations for market developments.