Poland launches first int'l dollar bond in 5 years

Poland launched a $1 billion 10-year international bond last week, its first new dollar bond in five years. But the recent volatility in emerging market debt meant the risk premium was higher than expected. The bond was larger than the $750 million first discussed in markets, indicating more appetite for the issue than expected. Analysts said there was demand from U.S investors keen to diversify out of Latin American debt because of problems in Brazil. Poland is one of 10 candidate countries expected to join the European Union in 2004 and this boosted investor confidence in the issue. But the pricing may have been affected by severe volatility in emerging market debt. The bond was priced to yield 158 basis points more than 10-year U.S. Treasuries, at the wider end of its initially discussed range of 150-160 basis points, which is typically a sign of weaker than expected demand. Michael Ganske, emerging market bond fund manager at Deutsche Gesellschaft Fuer Wertpapiersparen, said the bond was offering around 25 basis points more in yield than it would have if Brazil worries had not discouraged traders. The bond is fairly priced, or slightly cheap to the outstanding debt, he said. "They tried hard to come to market, even in this environment, (maybe) they think the situation in Brazil is going to get worse," Ganske said.

Brazilian bonds, which form around 20% of key emerging debt benchmarks, have been volatile and falling in price since mid-April, when markets began to believe that the country's October presidential elections might go to a candidate hostile to markets. Poland's debt is rated BBB+ by Standard and Poor's ratings agency, Baa1 by Moody's Investors Services and BBB+ by Fitch Ratings, which puts it at the lower end of investment grade but even so allows a borrower access to a larger pool of borrowers than non-investment grade. Such a rating is considered much safer that Brazil's debt, which is rated BB-, B1 and B+ from the same agencies. While U.S. investors have been tempted by the Polish issue, the response from European investors has been less encouraging, due to Poland's own recent economic troubles. Poland's economy came to a virtual standstill last year as sky-high interest rates quelled domestic demand and a global slump depressed exports. But the central bank has so far rejected government demands for drastic cuts in rates. A Bear Stearns analyst said last week that management of monetary policy had been "appalling." Poland's economy barely grew in 2001, and politicians from the ruling party of ex-communists have backed controversial bills to force rate cuts in interest rates, currently nearly seven percentage points above inflation, in a step experts say would violate the bank's independence. Even the International Monetary Fund, normally an inflation hawk, told Poland this week that the central bank had scope for further interest rate cuts. - Reuters