Croatian 2019 Budget Deficit Covered Already

Croatian Ministry of Finance had a busy week, holding two large government debt auctions. In the first one it issued EUR 1.048bn of 455-days EUR-indexed T-bill at 0.00%. On the second one it issued EUR 500m of RHMF-O-222E, EUR indexed 3-year bond at 0.61% and tapped HRK 5bn of RHMF-O-297A at 2.41%. With this issuance, Croatia funded its deficit planned for 2019 and can go on autopilot until November when RHMF-O-19BA and CROATI 2019 USD mature.

Last week Croatian Ministry of Finance held two big auctions on which it issued EUR 1.048bn of RHMF-T-019X on Thursday and EUR 500m of new FX-linked paper RHMF-O-222E and tapped HRK 5bn of RHMF-O-297A on Friday. Meanwhile EUR 1.5bn of RHMF-T-906X matured today, meaning that Croatia already financed deficit for 2019 which was forecasted at HRK 4.2bn.

EUR 1.048bn worth RHMF-T-906X is 455 days paper which was issued at zero return, while book stood at EUR 1.34bn, reflecting bid to cover ratio of almost 130%. Just to put things into perspective, RHMF-T-906X that matured today was issued in summer 2017 and yielded 10bps. Meanwhile, Croatian central bank maintained its first FX-intervention in 2019 in which it bought EUR 450.3m @ 7.41686 placing more than HRK 3bn to the system that already faces surplus of more than HRK 35bn. As MinFin rolled only two thirds of FX treasury, banks received almost EUR 500m but bought FX-linked paper. However, that was payable in HRK meaning that euros were left at their balances which was most likely the main driver for the yesterday’s pressure on EURHRK. 

Talking about EURHRK, RHMF-O-222E is EUR-indexed paper and was issued in amount of EUR 500m which makes the paper third smallest in notional, after RHMF-O-222A and RHMF-O-327A. It has a coupon of 0.50% and was issued at 99.678 meaning that yielded 0.66%. At the start of the auction, bookrunners informed investors that paper could bring premium of 5-15bps on interpolated RHMF-O-203E and RHMF-O-227E but due to very low liquidity of mentioned papers it wasn’t an easy job to price the paper before the auction. Bid was strong here as well, with books being above EUR 1bn. Looking at the top 10 holders, one could see that the paper is mostly held by the banks, with top four holders having more than 75% of the issuance.

Third paper that was issued last week was actually tap of the longest Croatian LCY paper, RHMF-O-297A. MinFin issued HRK 5bn with books being above HRK 11bn, as very high level of HRK liquidity surplus pushes investors into the longer part of the curve. Paper was issued at 99.678 (2.41%) which was slightly below dealers’ bid although bookrunners pointed to a spread of 5-15bps, just at the start of the auction. On Monday paper was traded in a wide range of prices, from 99.678 up to 100.35, meaning that prices modestly decreased compared with bid and ask prices of dealers on Thursday, day before the auction.

Summing it all up, Croatian Ministry of Finance proved that it does not have any problems funding its needs domestically and it could run way larger deficits that could be financed at home. In case Ministry of Finance doesn’t decide to overhaul budget for 2019 or to pre-finance 2020 it could go on the autopilot until November when both RHMF-O-19BA and CROATI 2019USD mature. Until then, MinFin could just wait for credit rating agencies and expect positive assessment.

Marin Onorato
Category : Blog

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