(Adds comments, background)
PRAGUE, Jan 26 (Reuters) - The Czech Republic said on Monday
it mandated Barclays Capital <BARC.L>, Deutsche Bank <DBKGn.DE>
and Ceska Sporitelna <ERST.VI> to manage a euro-denominated bond
issue, giving no signs of the timing or size of the offer.
The finance ministry said on Monday that the benchmark issue
would be part of the country's Euro Medium Term Note programme
and would depend on market conditions, but gave no further
details.
International debt markets have been flooded with issues
from euro zone countries borrowing to stimulate economies that
are sinking into recession, while investor appetite for emerging
debt remains thin after local bond markets seized up in late
2008.
Poland priced a five-year eurobond worth 1 billion euros
last week at a steep 300 basis points over mid-swaps -- a rise
over an issue last June that sold at 60 basis points over swap
-- in a sign markets are opening again but at a price.
"You have to pay a certain yield if you want to go on the
market in the current environment, so from a timing perspective
it is not the best moment to enter the market," said Wolfgang
Ernst, fixed income analyst with Raiffeisen in Vienna.
"Investors are not really willing to go into too much risk,"
he said, adding a Czech issue could be a good sign showing the
market may be improving.
The Czech Finance Ministry's debt financing strategy
foresees foreign issues of up to 74.2 billion crowns ($3.42
billion) this year, but said it did not expect an issue to come
in the first months of 2009.
The escalating financial crisis shattered central Europe's
debt markets late last year as concerns over external financing
rose, while falling demand for the region's exports has crushed
economic growth, harming appetite for debt.
Analysts expect the Czech Republic will have to pay a much
higher price than its last eurobond issue when it sold two
billion euros in a 10-year issue in June 2008, which yielded 25
basis points over mid-swaps <CZ036880007=>.
Dalimil Vyskovsky, a fixed income trader with Komercni
Banka, said pricing for the new Czech issue could be around 200
basis points above swaps based on the Polish issue and current
local and international market conditions.
"But you never know, the situation is changing each day," he
said.
The Czech Republic has three outstanding eurobonds, maturing
in 2014, 2018 and 2020, and spreads on those have widened to
around 150 basis points, according to Reuters data.
Spreads in some euro zone members like Ireland and Greece
have also ballooned to record levels over benchmark German
bonds, as investors worry over their financing abilities.
The Czech latest eurobond issue traded at around 200 basis
points above the benchmark 10-year German bund <EU10YT=RR> and
around 90 basis points below Greece's 10-year benchmark
<GR10YT=RR>.
The Czech Republic is rated 'A1' by Moody's, 'A' by Standard
and Poor's and 'A+' by Fitch.
Finance Minister Miroslav Kalousek said on Sunday the 2009
budget deficit would reach around 75 billion crowns, double what
is planned, if economic growth drops to 1 percent this year.
The ministry expects 1.4 percent growth in its new forecast.
(Reporting by Jan Lopatka and Jason Hovet; Editing by Michael
Winfrey/Patrick Graham)
