The Slovenia Times

Slovenia Overhauls Its Debt Management



Furthermore, it is the first international bond placement for Slovenia since entering the European monetary union. The transaction was jointly managed by Bank Austria Creditanstalt Ljubljana, Dresdner Kleinwort and Soci't' G'n'rale. Following a road show in which representatives of the Republic visited investors in London, Milan, Frankfurt, Amsterdam, Brussels and Paris, the order books were closed in less than three hours after orders exceeded EUR 4bn. The deal was priced at mid-swap -8bp, equivalent to Bund 01/2017 + 19.3bp. Real money orders led the way with asset managers at 53%, insurance and pension fund at 6% and central banks at 6%. Banks took 33% of the transaction and hedge funds 1%. The tight pricing and the outstanding demand clearly reflect the issuer's scarcity and the excellent credit quality. The significance of this transaction, however, should be seen from the broader perspective of the complete overhaul of the way the government manages its debt. The Ministry of Finance decided to depart from the past practice of issuing domestic bonds in auctions through domestic prime dealers and, instead, introduced primary distribution on international markets via a syndicate structure. In addition, the Ministry reorganized secondary trading by initiating a new wholesale secondary market platform with the participation of six international banks and three leading Slovenian banks: Bank Austria Creditanstalt Ljubljana, NLB and Abanka. The changes are a logical consequence of Slovenia's entry into EMU. Firstly, the Ministry made a good assessment of the credit quality of Slovenian bonds by concluding that the pricing did not fully reflect the good value of Slovenian sovereign credit. Secondly, it correctly evaluated the importance of secondary liquidity for the pricing decisions of investors and the benefits from diversification of the investor's base. Therefore, they made the right decision to resolve the many small domestic issues from the past via buy backs and to issue a new international benchmark instead. This was a highly intelligent way of further enhancing the value of Slovenian government bonds and creating conditions for significant savings in the servicing of state debt. The decision to use a syndicate structure is also highly logical considering the fact that the Republic of Slovenia is a relatively new international issuer. It gave the issuer additional marketing options like the road show, research support of the joint leads and access to distribution capacities via global sales force of the joint leads. Another significant aspect of this transaction is the fact that by issuing a benchmark government bond in EMU, the state is paving the way for other Slovenian companies to tap international debt capital markets. The main benefits are obvious: cheaper costs of funding, access to larger amounts and diversification of the investor base.


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