May 2, 2013 / 9:03 AM / 6 years ago

RPT-Slovenia reopens books for crucial dollar bond issue

By Davide Scigliuzzo

LONDON, May 2 (Reuters) - Slovenia returned to the bond market on Thursday, seeking offers for a dual-tranche U.S. dollar issue at a slightly higher premium than initially intended, following a delay prompted by a Moody’s downgrade to junk earlier this week.

The tiny Alpine euro zone state of two million is struggling to avoid a bailout because of its weak banks, a rising budget gap and a declining economy.

It delayed the bond sale on Tuesday after a two-notch cut by Moody’s rating agency to Ba1 from Baa2. However, on Wednesday it said it would proceeding with the issue.

Market sources told Thomson Reuters market service IFR that Slovenia has set initial price guidance of around 5.125 percent for a five-year tranche and around 6.25 percent on a 10-year tranche, the sources said. The figures represent a premium of 12.5 basis points over the initial price guidance Slovenia had released for both tranches before the Moody’s downgrade.

A successful sale could buy Slovenia time, at least until the end of this year, to start clearing the portfolios of its state-owned banks, sell some state assets and take action to reduce the budget deficit.

BNP Paribas, Deutsche Bank and JP Morgan are the leads on the 144A/Reg S transaction, comprising both tranches, which are expected to launch and price today.

“The good news is that Slovenia still has access to the bond market, but a not so good news is that the yield is just too high,” said Saso Stanovnik, an analyst at Ljubljana-based Alta Invest brokerage.

The Moody’s downgrade followed weeks of criticism from investors, European Union officials and analysts that Prime Minister Alenka Bratusek’s government had been too slow in revealing details of a bank clean up and austerity measures they say are required to shrink a budget gap swollen by recession.

The government would have done better to “put forward a reform plan and then raise money, not the other way round,” Stanovnik said. “This way there is a risk that reforms might not be as fast as necessary as the government might not feel a strong enough pressure after having raised funds.”

Another major rating agency, Standard & Poor’s, told Reuters on Wednesday it still viewed Slovenia as an investment grade country and was “broadly confident” the government would implement reforms and overhaul public finances.

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