Friday, 19 October 2018

Top 250 2005 - On all fronts

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As one of the new EU entrants with the largest borrowing needs, the Republic of Poland has been the most active benchmark issuer in foreign currencies. Added to this is the fact that the borrower set out in 2005 to try and repay its Paris Club Debt. Helene Durand looks at how Poland has been tackling the markets since January.

The year 2005 started with a bang for Poland. Indeed, by the middle of January the issuer had already raised €3bn worth of bonds in the 15-year maturity. This was no mean feat – stamping its mark as the first new EU entrant to not only succeed in raising raise such a size in one go but also to price such long-dated securities.

Saluting this development, Maryam Khosrowshahi, managing director at Citigroup, said at the time, "For Poland to be able to come to the market and issue €3bn in such a short-time was groundbreaking. It showed not only that Poland had joined the EU but was also regarded as a true European sovereign." Citigroup jointly led the offering along with BNP Paribas and DrKW.

The April 2020 transaction was subsequently increased by €1.5bn in March and by €750m in May. By taking it to €5.25bn, this clearly inks the issue as Poland's benchmark for the upcoming years – and is the largest tradable instrument from the new EU entrants. Of note was the fact that Poland has been able to clip the spread down on each time it tapped the transaction. Thus the January tranche priced at 27bp over mid-swaps, the March add-on came at 25bp over while the May tap priced at 22bp over.

The €5.25bn was way beyond Poland's original target for 2005 which amounted to €3bn. However, the €3bn did not include the Paris Club Debt (PCD) prepayments that the Ministry of Finance said it would like to repay in 2005 – €12.3bn, due between 2005 and 2009.

"Since we prepaid substantial portions of our PCD, our funding had to be increased. Moreover, we realised that there was sound demand for our foreign bonds and did not hesitate to tap into it, allowing us to lessen the burden on our domestic market," said Andrzej Ciopinski, deputy director of Poland's foreign policy department.

"Up until now, we have issued €5.25bn 15-year and €500m 30-year in the private placement format, and SFr1.1bn and a ¥75bn Samurai. We have managed to convince the majority of creditors to accept prepayments, although there as quite a few that are not keen to accept."

So far, out of the €12.3bn there is approximately €7.4bn left to be repaid. Germany, the UK, the US, the Netherlands, Sweden, Denmark and Finland have all been paid back while Switzerland and Spain have agreed but the payment has yet to be made. The Swiss and Spanish debt amount to €264m and €43m, respectively.

The increased funding needs have brought Poland to markets away from its domestic currency and the euro market. Its SFr1bn benchmark priced last April was a success, tapping five and 10-year tenors. More recently, its visit to the Samurai with a seven-year was also deemed a success – and at Y75bn, by far the largest the borrower has achieved in yen, and also pulling in some substantial non-Japan Asia participation.

A visit to the US dollar market in the second half of the year is not discounted. Indeed, the issuer was on a non-deal related roadshow in the US in April and has more recently stated that it would consider a US$1bn deal later in 2005. In total, foreign currency debt constitutes around 30% of the State's treasury debt portfolio – and out of this foreign portion, around 70% is in euros.

On a more general note, the issuer is unconcerned with the recent European developments which saw France and the Netherlands reject a new EU constitution.

"We think there is no impact on the euro co-operation and the Polish accession to the Eurozone. This accession depends predominantly on Poland's ability to meet the Maastricht criteria and one has to understand that the EU constitution is not changing anything in relation to the euro – as it was introducing new areas of co-operation, like foreign policy," stressed Jaroslaw Pietras, secretary of state, Office of the Committee for European integration.

Poland is making every effort to meet the Maastricht criteria. This has not gone unnoticed by S&P which recently put Poland's ratings on positive outlook to "reflect the improvement in Poland's medium-term fiscal outlook … as well as the economy's good economic prospects and comfortable external position."

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