Банкеръ Weekly



The owners of Brady bonds should erect a monument of the Finance Minister Milen Velchev and his deputy Krassimir Katev. They have hardly dreamt in their sweetest dreams to exchange Bulgarian Bradies yielding nearly 3% for USD-denominated long-term government securities from which they'll be getting 8% next year. However, investors won that jackpot with the cooperation of the Bulgarian Government. At a closed-door meeting on September 4, 2002 the Cabinet decided to swap part of the foreign debt Bradies for an issue of USD-denominated bonds, maturing on January 15, 2015. The par value of the exchanged issue may reach USD800MN, but the exact amount will depend on the prices, offered by the investors at the auction for swapping the bonds. Depending on the offers, we may effect a deal worth USD700MN or USD200MN. If we do not get advantageous offers, we'll not proceed with that operation at all, Deputy Finance Minister Krassimir Katev commented for the mass media.Both Mr. Katev and Milen Velchev forecast that the Brady bonds will be swapped at USD91-91.5 per USD100 par value. The new securities will bear an annual interest of 8.25%, but as they will probably sell at USD102.5 per USD100 par, they are expected to yield 8 per cent.Bulgaria will swap its interest arrears bonds (IABs), maturing in 2011, front loaded interest reduction bonds (FLIRBs), maturing in 2012, and collareralised discount bonds (DISCs), maturing in 2024, for new state-guaranteed USD-denominated bonds. The term for their repayment will be 12.8 years and payment of the principal will be effected on January 15, 2015. The securities will yield 8.25% interest, payable twice a year.The Finance Minister Milen Velchev and his deputy Krassimir Katev, together with the representatives of the investment intermediaries Schroeder Salomon Smith Barney and JP Morgan will make several presentations of the issue in New York, London, and probably Frankfurt. An auction will be invited afterwards where the candidates to swap their Bradies can place orders for the new securities. Prior that the price at which investors will acquire the new long-term USD-denominated bonds will be specified. The price will be 5 points lower than the market quotation of the USD-denominated bonds, maturing on January 15, 2015, a day before the auction is invited. If the quotation is USD103, the price at which the investors will acquire the new bonds will be USD102.5. According to the Deputy Finance Minister Krassimir Katev, the new securities will be sold at that price precisely. A day prior the auction the Finance Minister will also announce the price of the Brady bonds, at which non-competitive orders will be accepted for swapping them for the new USD-denominated securities. It will be probably USD91.5MN for USD100 par value. Investors will also place competitive bids at prices exceeding the level of non-competitive orders. The Finance Minister together with the investment intermediaries will assess at what price the State is inclined to buy its Bradies and at what price it is ready to sell the new bonds. Disadvantageous orders will be rejected and the total volume of the deal will be formed from the remaining ones.Investors, whose orders are approved will be notified by the investment intermediaries, effecting the technical operations for swapping the bonds. The entire process should be completed till the end of 2002.

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