Credit Primary Market October 08, 2018 / 06:00 am UTC

Review: Romania braves thorny market conditions and offers meaty NIPs on EUR1.75bn 10yr/20yr dual-tranche [Repeat]

By Malicka Sielinou

Romania (Baa3/BBB-/BBB-) returned to the foreign debt market on Thursday (4-Oct) with a EUR1.75bn RegS dual-tranche offering, split across EUR1.15bn Mar-29 and EUR600m Mar-39 segments. The long-10yr bond came at a spread of m/s +195bp (from +195-200bp wpir final guidance, +200-205bp guidance & +210-215bp IPTs). The long-20yr paper was set at m/s +270bp (after +70bp [#] final guidance, +275bp area guidance & +280bp area IPTs).

Emerging European sovereigns are currently rushing back to the euro market, prompted by Cyprus' successful EUR1.5bn 10yr offering in mid-September. Romania came hot on the trail of Hungary (25-Sep) and Albania (3-Oct). However, Romania seized a window which proved less auspicious since a sell-off in USTs and qualms over Italy's budgetary policies as wells as Brexit negotiations, triggered a deterioration of market conditions. Of note, the week witnessed the VIX index soar from 12.22 to 15.95. As a result, the Republic resorted to offer meaty premiums to whet investor appetite.

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Romania last visited the 10yr spot of its euro curve in April 2017, with a EUR2bn Apr-27 bond which priced at m/s +170bp and was quoted at circa m/s +143bp at pre-mandate stage. More recently in February, the Republic launched EUR750m Feb-30 and EUR1.25bn Feb-38 bonds at m/s +133bp and m/s +190bp respectively. Pre-mandate quotes placed these 12yr and 20yr notes at circa m/s +188bp and m/s +234bp.

Using these levels, we gauged fair values at i +162bp area for Romania's Mar-29 bond, and at i +255bp area for its Mar-39 paper. These estimates suggested that Romania forked out final NIPs of 33bp and 15bp for the Mar-29 and Mar-39 notes respectively. In comparison, back in February, Romania issued its Feb-30 and Feb-38 bonds with respective NIPs of 3bp and 0bp. More recently, in June, Croatia (Ba2/BB+/BB+) issued a EUR750m 10yr paper with a final NIP of 9bp.

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The new Romanian tranches registered mixed performances in the secondary market on Friday (5-Oct). The Mar-29 bond widened by about 2bp to circa m/s +197bp, while the Mar-39 paper moved 1bp tighter to circa m/s +269bp.

Furthermore, the Romanian curve shifted higher and steepened markedly alongside the two-part pricing on Thursday. This was evidenced by the Republic's Apr-27 and Feb-38 bonds which widened by 2.66bp and 11.13bp respectively. The curve advanced further on Friday, albeit marginally; the Apr-27 and Feb-38 notes were each quoted 1.14bp and 2.82bp wider on the day.

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Despite the chunky premium on offer demand was somewhat thin for the Mar-29/Mar-39 dual-tranche deal, and Romania garnered a combined orderbook in excess of ~EUR2.8bn (1.6x times covered). In contrast, back in February, the Republic drew EUR5.3bn+ orders for its EUR2bn Feb-30/Feb-38 two-part offering (2.6x oversubscribed). For further comparison, the issuer's EUR1bn Apr-27 paper attracted EUR2.8bn+ interest in Q1-2017.

By Malicka Sielinou

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