The Hungarian sovereign has tapped the international capital markets for the first time in over two years with a Chinese yuan-denominated bond. The CNY1bn (US$154mn) bond has a tenor of 3 years and was priced at 6.25%, down from initial price thoughts of roughly 6.5%.
The Bank of China was mandated as the sole lead on the transaction. The bond was oversubscribed by two and a half times.
“The restricted supply resulting from the sovereign’s absence from the capital markets for some time has led to increased demand,” said Roxana Huela, Vice President of Emerging Market Strategy at Societe Generale.
She noted that investor sentiment regarding the country has turned increasingly positive, with the appreciation if its currency and a turnaround in the performance of its local bonds. Huela also said that there had been improvements in external vulnerabilities, but that some political hurdles remain.
Repayments on Chinese yuan-denominated bonds are higher than US dollar-denominated notes; however the sovereign issued in yuan as part of a wider diplomatic effort.
“The issuance of a yuan-denominated bond is part of an intensified diplomatic effort with China,” said stated Huela. By issuing in yuan, the sovereign is also diversifying its methods of financing.
China is looking to improve its presence in Eastern Europe as part of its new ‘silk road’ initiative by improving ties with countries in the region. Hungary was the first Eastern European country to sign an agreement with China on this.
Hungary is currently rated as junk by the three main ratings agencies. Moody’s rates the sovereign at Ba1 with a positive outlook, whilst Standard & Poor’s and Fitch both give the country a BB+ rating, with the former offering a stable and the latter providing a positive outlook. Some analysts believe the sovereign could soon return to investment grade in the future.
Hungary is looking to raise €1bn through foreign bond sales this year to help repay €4.8bn worth of foreign currency debt maturing this year.
It is the first Eastern European country to issue debt denominated in yuan. The country’s Minister for the Economy said that the sovereign could issue a further CNY2bn in bonds. Poland is also considering issuing yuan-denominated debt.
