Best borrowers 2007: Best sovereign borrower – Central & Eastern Europe: Republic of Hungary


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Worst of times overcome as investors look to the long term.

Euromoney’s borrower awards 2007
Overall awards
Best sovereign/supranational/agency borrowerBest bank borrower
Best insurance borrowerBest ABS
Best CDO borrowerBest covered bond issuer
Best corporate borrowerBest high-yield/leveraged finance borrower
Latin America regional awards
Best sovereign borrower Best corporate borrower
Best financial borrower
Central & Eastern Europe regional awards
Best sovereign borrower Best corporate borrower
Best financial borrower
Asia regional awards
Best sovereign borrower Best corporate borrower
Best financial borrower
Middle East and northern Africa regional awards
Best borrower

Good borrowers can always take advantage of favourable conditions to secure market access. But the very best borrowers can launch issues at even the worst of times. And times can hardly have been worse than in late September 2006 when the Republic of Hungary launched a €500 million tap of its November 2012 floating-rate note. While lead managers BNP Paribas and Dresdner Kleinwort were preparing to launch the latest in a series of liability management exercises for the sovereign, protesters were clashing with riot police outside the Hungarian parliament.

Lesser issuers might have baulked at the prospect of coming to market against such a dramatic and potentially harmful backdrop but officials of the AKK, the Hungarian debt management agency, held their nerve and pressed on with an issue, which helped to deliver the type of liquidity increasingly demanded by investors.

"It was very important to have a good, smooth transaction," says Andras Rez, head of planning, research and risk management at the AKK. He adds: "The riots did not have a negative effect on the government’s ability to raise money internationally."

Despite the unrest following revelations that prime minister Ferenc Gyurcsány had allegedly misled the Hungarian public about the state of the country’s economy, the lead managers were still able to pitch the deal in the middle of the 24 to 26 basis points over Euribor price guidance after the outstanding bonds widened by only 1bp to 2bp in the run-up to launch. What’s more there were plenty of takers for the paper.

"Investors are more interested in the country’s long-term finances than short-term political problems," says Rez, adding that buyers of Hungarian debt will ultimately judge the government on its ability to deliver on promised economic reforms, most notably slashing the country’s budget deficit from its near 10% level.

Although some bankers questioned the wisdom of launching an overseas deal in the face of the political volatility at home, the AKK was ultimately vindicated by its decision to proceed with the tap, which completed the country’s €2.5 billion international bond funding requirement for 2006.

With the television news images of burning cars and clouds of tear gas floating across central Budapest having faded into the past, in 2007 the AKK has moved quickly to take advantage of improving investor sentiment at home and abroad to launch a highly successful €1 billion 10-year trade in late January, which garnered nearly €2 billion in orders.

Bookrunners BNP Paribas, Dresdner Kleinwort and ING were able to launch a deal that offered a negligible new-issue premium to outstandings but which still achieved the borrower’s objective of widening its investor base beyond traditional buyers to encompass greater participation by accounts in Iberia and Scandinavia. Almost half the names in the 80-strong order book were buying Hungarian risk for the first time. With a relatively modest Eurobond funding target of €2 billion in 2007, the country is now set fair for the rest of the year.