T-bond issue testifies to confidence in Poland's economic future
The first Polish T-bonds to hit the international market in more than four years were snatched up by hungry investors betting on the stability and strength of the zloty last week, prompting the Finance Ministry to substantially increase its debt offering.
Analysts praised the timing of the issue, which grew from o400 million to o600 million, saying faith in the Polish economy was strong and the interest rate differential was attractive to investors in Western Europe.
They noted that the strong showing might prompt other Polish companies like monopoly telecom Telekomunikacja Polska (TPSA) to follow suit, as they had been waiting for a benchmark bond from the government.
"This product was really addressed to banks operating in London," said Mariusz Pypec, a fixed-income analyst with CA IB Investment Management. "I think that the bonds were very attractive because the Polish economy is perceived pretty well." Pypec noted there had been talk of issuing the Eurobonds last year, but that the zloty had been too unstable.
The 10-year Eurobonds carried an interest rate of 6% which is 0.82%, or 82 basis points, higher than bonds of the same maturity offered by the German Bundesbank, and the issue was managed by BNP Paribas and Credit Suisse First Boston.
Katarzyna Zajdel, an economist with Citibank (Poland), said the issue's BBB rating by Standard & Poor's would reassure investors concerned about Poland's high inflation and current-account deficit, presently at 7.8% of GDP. January's year-on-year inflation figure was 10.2% and presumably encouraged interest-rate increases several weeks ago.
But overall, "confidence in Poland is quite high," said Zajdel. She added that TPSA and other Polish companies would likely follow suit with their own debt issues.
The Finance Ministry has not said how it has earmarked the funds, but Zajdel speculated that the proceeds could go into a National Bank of Poland (NBP) special account to finance the budget, or help buy back U.S.-issued Brady Bonds. "They should say something because people are asking about it," she added.
Citibank's Pypec said he thought the money would be combined with privatization proceeds to finance pension reform, healthcare reform and the war on inflation.
High interest rates and a growing sentiment that the current-account deficit will ease should also attract international short-term investment to Poland, he said. Pypec said he expected stronger exports in two or three years as greenfield investment in Poland's Special Economic Zones started to bear fruit.
The central bank's current inflationary target is 5.4-6.8% year-on-year, a figure that Pypec said was realistic. But he added that while the state was eager to assure investors that it had the economy under control, he could also envisage inflationary pressures rising as high as 10.5% by year-end, with the current-account deficit ballooning to as much as 9% of GDP.
"I feel that if the government is saying that everything is okay, it may not be okay," he said. "At the moment, they are trying to regain control ... However, the Polish economy is perceived positively by internationals."
Bonds were issued in euros, Pypec said, to stress Poland's commitment to the EU market.
The last Eurobond issues in Poland took place in July 1995, for $250 million, and July 1996, for DM 250 million. Both carried five-year maturities. In 1997, the government launched two bond issues on the American market with 7- and 20-year maturities and for $300 million and $100 million, respectively.
