Poland raised US$3bn in its first US dollar transaction in over six years on Tuesday, though the lack of a developed curve meant defining relative value was a difficult task.
The sovereign has barely featured in core markets in recent times, with a deal in euros in May its first in that currency in nearly two years. Its absence from dollars had been even longer, but with a US$2bn redemption due next year, it took the opportunity of favourable technicals to return.
It did so through two US$1.5bn tranches – one with a five-year tenor, the other a 10-year. The amount raised was US$1bn more than Poland (A2/A–/A–) was targeting, with orders at over US$8.5bn.
Books opened at 155bp area over Treasuries for the 2027s and 200bp area for the 2032s. Both notes were tightened by 25bp, to plus 130bp and 175bp, respectively, for yields of 5.619% and 5.89%.
Optically, those final spreads suggested a premium of 25bp–30bp based on Poland's curve, though a lead said determining fair value was far from straightforward given the deal was, to a large extent, an exercise in price discovery.
Poland's longest outstanding US dollar bond was its April 2026s, which was bid at 71bp over Treasuries, according to Tradeweb. That, though, is an illiquid and now short-dated note. "You can extrapolate from there but I don't think it provides a good explanation," said the lead banker, about using the 2026s to derive fair value.
He said other investment-grade EM sovereigns were better reference points, ranging from Chile to Indonesia and the Philippines, and the Middle East. "There wasn't one specific view to derive fair value, though there was a tight range in what investors thought it was," said the lead.
The spread and yield, as well as scarcity value, were attractive selling points compared with other EM investment-grade sovereigns. Saudi Arabia (A1/–/A), for example, sold a US$2.5bn 10-year bond last month at 150bp over Treasuries to yield 5.5%. And with no knowing when Poland will next issue in dollars, and with the bonds eligible for the indices too, the transaction was too tempting for most big EM investors.
These technicals overrode any economic or political concerns some investors may have about Poland. S&P at the end of September said the Russia-Ukraine war and the associated stagflation shock had hit Poland's economy hard, lowering its forecast for real GDP growth in 2023 to 1.2%, while inflation is expected to remain above 10%.
S&P estimated that the general government fiscal deficit will be almost 6% of GDP next year, thanks to high defence and social spending pressures, although Poland's competitive and diversified economy, as well as its strong external and public balance sheets, should help mitigate the risks the war presents.
The government also continues to be at loggerheads with the EU over certain governance matters. Earlier this month, Reuters reported the government had submitted an official request to the EU to suspend fines of €1m a day imposed by the bloc's top court over Warsaw's failure to implement a court order concerning judicial reforms. The report was based on comments made by a Polish minister to a local private broadcaster.
BNP Paribas, Deutsche Bank, Goldman Sachs, Santander and Societe Generale were the leads on the new issue.