Hungary's debt manager issues financing plan for 2010

Key points in the ÁKK’s financing strategy for 2010:

- total net financing requirement (HUF 982 bn) is virtually flat compared to 2009, although the net financing requirement of the central government is to drop markedly to HUF 870 bn from HUF 992 bn;

- the explanation to that lies in the fact that net pre-financing of European Union transfers amounts to HUF 111 bn (although this financing requirement could drop considerably as we go forward in 2010);

- the ÁKK plans small positive net forint-based issuance and tiny positive net FX-based issuance;

- the new objective is to achieve that the share of the foreign currency denominated debt - excluding the funds from the international IMF/EC loan package - within the total central government debt does not exceed 38%. According to plans, the FX loan ratio is to drop to 32-33% by end-2010.

- Net domestic financing will be supported by HUF 215 bn in loans in forint from International Financial Institutions (EIB and CEB). This also helps cut the FX ratio int he gov’t debt.

- the ÁKK does not plan to take out foreign currency loan from international financing institutions for project financing purposes next year;

- beside the net market issuance, the remaining part of the net financing requirements will be financed by using the previously drawn but not yet used funds from the international (IMF/EC) loan package. No new drawdowns from this loan facility are planned in 2010; the facility will be kept as a financial reserve in case of unfavourable market conditions.

- there will be a slight increase in the foreign currency debt stock in 2010, but the primary objective of foreign currency debt issuance is to refinance maturing foreign currency debt;
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- the ÁKK said it would monitor market demand closely and decide on the amounts accepted at auctions flexibly.

Detailed plans
Net domestic government securities issuance is planned at HUF 316 billion, made up by HUF 170 billion in net bond issuance and HUF 153 billion in net discount T-bill issuance, while the stock of retail government securities will be maintained at the current level.

New foreign currency issuance in the international capital markets is planned in a total amount of EUR 1.5 billion (cc HUF 400 bn). The primary objective of FX debt issuance is to refinance maturing foreign currency debt. Net foreign currency borrowing will account for only HUF 37 bn (EUR 130 m).

The ÁKK plans only one or two benchmark FX bond issuances for the year, with the first likely to take place in Q1.

Ferenc Szarvas, CEO of ÁKK, did not exclude the possibility of a USD bond issuance besides a EUR debt issue. He stressed that the key goal remained to expand the investor base, i.e. if they see an appropriate demand among US investors it should be enough to make that move.

Planned amounts of government bond types:

Given its objective to be as flexible as possible, the ÁKK did not specify the duration or the size of issuances. The issuance calendar includes only the dates of bond auctions. The issuer will decide on the actual bond series after consultations with market participants in the week preceding the auction. However, the current practice, i.e. regular simultaneous sales of the 3-yr, 5-yr and 10-yr bonds is likely to be continued in the coming auctions.

In view of the number of possible bond tenders (three days in every six weeks), the ÁKK estimates average bond sales of HUF 151 bn in 2010 vs. HUF 196 bn in 2009, said Deputy CEO András László Borbély. “I don’t think this would be an extraordinarily large sum," he told a press conference.

ÁKK will hold both bond-buybacks and exchange auctions in order to support a balanced government bond issuance pattern and to manage the maturity profile and refinancing risk of the bond portfolio.
Issuance calendar of government bonds in 2010:

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