* Czechs set size of 5-1/2 year eurobond at 1.5 bln
* Final guidance at 190 bps over swaps
* Sale reduces govt borrowing pressure, helps local bonds
(Adds details, quotes, prices)
By Jason Hovet
PRAGUE, April 28 (Reuters) - The Czech Republic returned to
international debt markets for the first time in almost a year
with the sale of a 5-1/2 year eurobond on Tuesday, seeking to
build up a cushion for this year's ballooning budget gap.
The size of the euro-denominated bond, maturing in November
2014, was set at 1.5 billion euros, with final guidance at
mid-swaps plus 190 basis points, Thomson Reuters online news and
market analysis service IFR said.
Czech bond dealers said the book size was at more than 2
billion euros ($2.60 billion) by midday. Barclays, Deutsche Bank
<DBKGn.DE> and Erste Bank <ERST.VI> are managing the sale.
Sentiment for central European debt has improved since March
due to rebounding global stocks and International Monetary Fund
pledges to make emerging market funds available. The Czechs have
sold more domestic bonds than planned in that time.
The Czechs last sold on international markets last June with
a bigger-than-planned 2 billion euro, 10-year eurobond issue
priced at 25 basis points over swaps.
The outstanding Czech eurobond due in June 2014
<CZ019495752=> was quoted with a yield of 4.440/004 on Tuesday,
170 basis points over swaps. The domestic 5-year quoted at
4.515/4.104 percent yield, 136.8 basis points above swap.
The yield on the domestic 5-year paper has dropped 30 basis
points in the last month on improved sentiment, and dealers
expect the euro issue to ease pressure on local markets.
"The bigger size of the eurobond will mean less need to
issue on domestic markets," a dealer said. "So this will be
quite positive for local bonds."
BREATHING ROOM
Komercni Banka fixed income analyst Anne-Francoise Bluher
said the state has borrowed 98 billion crowns on domestic
markets so far this year.
She said this amount and an expected 1.5 billion eurobond
sale would mean the country has already covered more than half
of its forecast borrowing needs for this year.
"Now they are in good position, but that's not forever," she
said. She said an unclear outlook for the 2010 budget and an
early election planned for the autumn would pressure local
bonds.
Komercni Banka expects the government's gross borrowing
needs to jump to 198 billion to 248 billion crowns from the
government's plan of up to 132.6 billion, set when the country
aimed for a budget gap at 1.5 percent of gross domestic product.
But the budget deficit is now expected to triple to up to 5
percent of GDP. The ministry's new forecast shows the economy
contracting 2.3 percent as western demand for central Europe's
cars, televisions and other goods plummets.
In Slovakia, the first from the region to swap its currency
for euros in January, the government mandated banks on Monday to
lead a eurobond issue worth at least 1 billion euros.
The Czech and Slovak issues would follow a Slovenian
eurobond sale in March that priced a 2014 bond at 160 basis
points over swaps.
The Czech ministry had scrapped plans for an eurobond issue
in February when the price of insuring credit risk shot to
record highs on central European banking and financing worries.
Since then prices on a 5-year credit default swap (CDS) have
dropped to 150 basis points from a high of 350 basis points seen
on Feb. 24, according to Reuters data.
(Additional reporting by Jane Baird in London; Editing by Ruth
Pitchford)
