* Investor road show around Europe is going well - sources
* Bulgaria hit by S&P credit rating downgrade, bank crisis
* Faces second snap election in two years this autumn
By Tsvetelia Tsolova
SOFIA, June 24 Bulgaria will go ahead as planned
with a 1.5 billion euro bond sale despite a sovereign credit
rating downgrade and an expected state rescue of a local bank as
these will not push yields up to unattractive levels, two
sources familiar with the sale said.
Bulgaria kicked off a European investor road show in Germany
on Monday to raise money needed to repay global bonds that
mature in January and to finance a budget deficit the government
targets at 1.8 percent of gross domestic product this year.
The road show, which also travels to London, Paris and
Vienna this week, has been overshadowed by a run on Corporate
Commercial Bank (Corpbank) by depositors rattled by
media reports of suspect deals at Bulgaria's No.4 lender.
Both the bank and its main shareholder deny any wrongdoing.
Bulgaria's central bank has taken control of Corpbank and a
recently acquired subsidiary and has outlined a plan for a state
rescue of the lender if talks with existing shareholders to prop
up the bank with more capital fail.
The bank run followed on the heels of a sovereign downgrade
by global ratings agency Standard and Poor's earlier in June to
one notch above junk, citing ongoing political turmoil that has
put the brakes on reforms needed to spur economic growth.
But two sources familiar with discussions with investors at
the start of the road-show in Germany indicated that the
Bulgarian government would not be forced to delay the sale, the
country's first such issue since 2012.
"DEAL WILL GO WELL"
"The meeting in Germany went quite well, there has been an
interest," one source told Reuters on Tuesday. "Of course the
rating cut and the Corpbank events will pressure the yields, but
there will not be a massive correction. The deal will go well."
A second source, who also declined to be named, said: "The
one-to-one meetings in Germany went really well. The interest is
now good also in London."
Bulgaria is the poorest member of the 28-nation European
Union but is also one of its least indebted. Public debt stands
at only about 18 percent of GDP.
But the Balkan nation has been racked by political
instability since early 2013 and is expected to hold its second
snap election in under two years in September or October.
Economic growth is sluggish and foreign investment has fallen
Stephan Imre, a financial analyst at Raiffeisen bank, said
in a note on Tuesday that investors would probably demand a
modest spread pick-up to compensate for the S&P downgrade and
Corpbank's expected nationalisation.
"Still, the bond placement will be subject to market
conditions so there remains a risk the government may delay the
issue should it find the pricing offer unattractive," Imre said.
Citigroup, HSBC and JP Morgan are the lead managers on the
(Writing by Matthias Williams; Editing by Gareth Jones)