Saturday, October 1, 2011

HUNGARY - Hungary Debt Chief Rules Out Junk Grade, Eyes Islamic and Ruble Bonds

Sept. 30 (Bloomberg) -- Hungary has a higher chance of the outlook on its credit profile being raised to stable from negative than having its rating cut to junk from the lowest investment grade, the Debt Management Agency said.
Teams from Standard and Poor’s and Moody’s Investors Service will visit the country in October to review its rating, Chief Executive Officer Gyula Pleschinger told a conference in Pecs, southern Hungary, today. S&P rates Hungary BBB- with a negative outlook. Moody’s and Fitch Ratings also rate it a step above junk with negative and stable outlooks, respectively.  (source)


“I see no sensible reason for a downgrade,” Pleschinger told reporters in what he said were “clarifications” to earlier comments that suggested a cut was possible. “If I had to bet, I’d say there’s a bigger chance of having our negative outlook lifted than of further downgrade.”
Hungary was the first European Union member to obtain an International Monetary Fund-led bailout in 2008 and has the highest government debt level among eastern members of the European Union at 77 percent of output. The country is wooing sovereign wealth funds to invest in forint debt and is considering selling Islamic bonds and notes denominated in Russian rubles, Pleschinger said. Hungary doesn’t need another IMF loan, he said.
Stocks, Forint
Stocks pared losses after Pleschinger said “fundamentals” wouldn’t justify a credit-rating cut. Earlier he said he was “afraid” of a downgrade. The BUX index dropped 1.7 percent to 15,534.53 at 1:57 p.m. in Budapest compared with an earlier decline of 2.3 percent. The forint rose 0.1 percent to 292.43 against the euro.
The cost of protecting Hungarian debt against non-payment for five years using credit-default swaps rose to 525.43 today from 512.69 yesterday. They reached a two-and-a-half year peak of 539.715 on Sept. 26. Hungary’s CDS level is “unreasonably high” in a regional comparison, Pleschinger said.
Earlier today, he said the possibility that Hungary’s rating will be cut to junk “can’t be ruled out.”
‘Living with the Consequences’
“We’re living with the consequences of being rated BBB-and I’m a bit afraid we’re going to be living with the consequences of being BB, because it can’t be ruled out that credit-rating companies, in their zeal, may cut the grade,” Pleschinger said in a speech. “I hope we succeed in retaining our investment grade.”
Hungary is “far” from the full implementation of its three-year spending-cut plan, which the government announced in March to put the budget on a sustainable path, Mihaly Varga, Prime Minister Viktor Orban’s chief of staff, said yesterday.
The Cabinet has “depleted” its arsenal of one-off measures, including the effective nationalization of private pension funds, to plug budget holes, Fiscal Council head Zsigmond Jarai said yesterday.
The government plans to scrap early retirement and is reducing unemployment and sick-leave benefits as part of measures to save 550 billion forint ($2.5 billion) next year and 900 billion forint annually in 2013 and 2014.
Hungary cut its offer of 12-month Treasury bills by 34 percent at an auction yesterday after getting the lowest amount of bids on that maturity in more than six years. It completed its 4 billion-euro ($5.4 billion) foreign-currency financing plan for 2011 with the sale of euro- and dollar-denominated bonds in the first half of the year.
Islamic, Ruble Bonds
Hungary may sell Islamic and ruble bonds while it tries to lure sovereign wealth funds from China, Russia, Norway, Saudi Arabia and Kazakhstan to be long-term investors in forint debt, where the large share of foreign investors has created risks to budget financing needs, Pleschinger said.
“We are working hard to have a presence among buyers of Islamic bonds and I hope that in the first half of next year we’ll succeed,” Pleschinger said. “We are also thinking of a ruble bond sale on the Russian market, which we would then swap for euros or dollars.”
Foreigners’ holdings of Hungarian government bonds and bills fell 17 billion forints yesterday to 3.9 trillion forint, compared with 4.02 trillion forint on Sept. 16, which was the highest since Bloomberg started tracking the data in 2002.
Hungary’s economy stalled in the second quarter as the global recovery faltered, with gross domestic product unchanged from the previous three months. The government forecasts growth of 1.5 percent next year, compared with the central bank’s 1 percent estimate.


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