MNI INTERVIEW: Space For More CNY Issuance By Hungary-Official

Hungary could issue up to CNY5 billion in Chinese yuan bonds this year, a senior debt management agency official told MNI, though he added that with the majority of this year’s funding complete there are no plans to adjust benchmark targets.

With 96% of total planned net issuance completed, fulfilment of the funding plan is "very well advanced and very well on track,”  Andras Bebes, Deputy CEO of Strategy at the Allamadossag Kezelo Kozpont (AKK) said in an interview.

“What we have to do in the remainder of the year is to finance the upcoming maturities, for example the 2025/C maturing in November,” Bebes said.

Hungary had originally planned EUR2.5 billion in euro-denominated issuance in January and CNY3 billion for the first half of the year.

But changes in the global macro environment, the higher cash-flow deficit announced by the government in June, and the desire to build additional liquidity reserves, led to a USD4 billion transaction - slightly more than the USD3.5 billion initially planned, in an auction which Bebes noted was three-times over-subscribed.

The remainder of this year’s FX bonds are expected to be in yuan, and will finance maturing FX debt, such as yuan and yen issuance, he said.

“What is left in terms of FX bond issuance is the Chinese yuan issuance. We're planning to do it in the second half of the year, probably in the coming months. What we have already done is set up a programme for five billion Chinese yuan, and we intend to use, according to the financing plan, three billion out of that. Whether we upsize it or not will depend on market conditions,” Bebes said.

These will be plain vanilla bonds, with no restrictions on the use of proceeds, Bebes said, adding that the main reason for the AKK’s onshore Asian issuances is investor diversification.

YUAN ISSUANCE

“When we issue green bonds, of course, we use the proceeds according to the green bond framework, however we do not plan the upcoming Chinese yuan issuance to be green.”

Hungary’s U.S. dollar issuance is currently slightly above the 30% FX debt benchmark set by the AKK, but is expected to fall to 30.2by the end of the year, Bebes said. But with next year’s FX share expected to be something similar, there is at present no need to change this benchmark target. 

“We have a medium-term debt management strategy, and within that framework, we set benchmark targets, in the process putting together the funding plan for the next year. It happens usually around October and November. We have a so-called optimal debt portfolio model, and based on the results of this model we have an idea of what would be the optimal composition of financing. Based on that we set our benchmark targets.”

Bebes pushed back at suggestions that Hungary could lose its investment grade status in the near future, following S&P’s April decision to downgrade its country outlook from stable to negative, while affirming its BBB-/A-3 long- and short-term foreign and local currency sovereign credit ratings.

“S&P has its own methodology, and they come to their own conclusions,” Bebes said. “The government projection on the fiscal trajectory and our expectation on the interest expenditure of the central government debt are slightly different than S&P’s. The fundamentals are strong and there is fiscal discipline, which do not point in the direction of any downgrade.”