Within the framework of today, the Bulgarian government will try to secure the financing of the budget deficit. This will be done through two issues of debt on the international markets, which the Ministry of Finance has announced to the dealers and will collect offers in the following hours.
The exact volume of the new debt sought has not been announced, but it is probably a total of 2 billion euros, roughly the same as the space for taking on new debt. The set limit in Budget 2023 is 7.5 billion euros, but already in January 1.5 billion euros of ten-year bonds were placed for the refinancing of maturing ones. This means that a little over BGN 4.5 billion or EUR 2.3 billion remain, so with great interest and good conditions, debt up to this level could be placed. This would almost completely cover the budget deficit of BGN 4.6 billion, which represents 2.5% of GDP on a cash basis.
According to the announcement, the issue is divided into two tranches, just like a year ago, when Bulgaria managed to place 2.25 billion euros. One of the bonds matures in 7.5 years in May 2031 and the other is 12.5 years due in May 2036. As both issues are intended to be benchmarked, volume is likely to be sought in each 1 billion euros, which is usually also a kind of threshold for interest from large institutional investors, since smaller issues imply less liquidity.
As for the yield, it will be determined by demand at the end of today. The indicative value submitted by the Ministry of Finance for the shorter-term issue is mid-swap+180 basis points, which, based on the quotations of the indicator from the morning, is about 4.90-5.00%. At the 12-5 year indicators, the zone stated by the issue managers is around MS+210 bp. or 5.20-5.30%. These values are a kind of ceiling, and in case of great investor interest, better terms can be negotiated during the day. For example, in January the initial indication was for MS+250, but after orders exceeded €7 billion with €1.5 billion of bonds on offer, the issue was finally closed at MS+215 bp. or 4.78%.
Without a budget, but with a forecast
The auction comes without the 2024 Budget yet being presented, but a few days ago the finance ministry published its updated macroeconomic forecast and has already made clear several times that it plans a deficit within the 3% allowed under European rules.
The timing is probably right and it is after the local elections, which is of little importance to international investors, but usually the topic of debt is used on the domestic political front. At the same time, the friction surrounding the mayoral vote brought some uncertainty about the stability of the government.