Банкеръ Weekly



Finance Minister Milen Velchev to the BANKER weeklyMr. Velchev, what steps for managing Bulgaria's foreign debt will follow the Eurobond issue?- In the beginning of next year, but not before February, we'll launch a new issue of Eurobonds. The exact time will depend on the market situation, investors' willingness to acquire that kind of securities, and of course - on the quotations of Bulgarian Eurobonds on the secondary market.Our first step will be to increase the present issue's volume by marketing an additional amount of 5-year Eurobonds, on which we'll be again paying a 7.25% interest on March 1 each year. In other words, the parameters of the additional bonds will be identical to those of the securities we launched on November 12, 2001. We'll undertake that step in order to raise the present issue's volume, making it more liquid in that way. I believe the additional bonds will attract invetsors' attention, as the bids we got for the present Eurobonds exceeded four time their aggregate par value of EUR250MN.The interest rates on international markets are very low now. How would you ensure against an eventual incerase of the international interest rates?- As I have explained before, we are considering the opportunity to close foward and future deals, by which we would practically fix the interest payments at a very low level. We have to decide how to time these operations. The forecasts are that the 6-month London interbank offered rate (LIBOR), to which most of the Bulgarian foreign debt payments are pegged, will continue to go down. It is currently below 2%, and the forward deals offered on the market pre-estimate the 6-month LIBOR at 2.26% in the end of 2002. Let's assume that we close a forward deal with some of the players on the Chicago Board of Trade or on the London International Financial Futures Exchange at that rate of LIBOR. If LIBOR goes up, we'll gain money to cover the increased payments of foreign debt interest. If LIBOR goes down below 2.26% in end-2002, the State will have to pay for the forward deal, but at the same time the expenses for servicing foreign debt interest would decline. Thus, we could not lose from such a forward deal, but we would give up profits from the decrease of the interest rates. Our net expenses for payment of foreign debt interest will be at 2.26% LIBOR, independent of its rate on the date of payment to foreign creditors.In the same way we could ensure against a risk of the US dollar's rise against the euro, as most of Bulgaria's payments are effected in US dollars. We could do that by closing several futures. We are also ready to consider other deals for foreign debt management, i.e. swapping Brady bonds for other kinds of government securities.The agreement with the Italian Agency for Insurance of Export Credits (SACE), under which Bulgaria could service its liabilities to it through debt-for-equity swaps, expires in the beginning of 2002. Will you make an attempt to extend the term of that agreement?- We'll most probably try to extend the term of the presently applied scheme for servicing Bulgaria's debt to SACE. Under that scheme, the investors purchasing a state-owned firm could pay part of the price or the entire price to SACE instead of remitting the money to the Bulgarian State. We also offer similar schemes for settling Bulgaria's liabilities to some of the Paris Club member countries, which are our creditors. We have indications that Belgium and France could agree to close debt-for-equity swaps with Bulgaria.The launching of the first Bulgarian Eurobond issue is history already. Were there any tense moments when presenting it to the foreign investors?- Yes, there were. After I completed the presentation in Milan, where I held talks with more than 30 investors at a lunch in the luxurious hotel Principessa di Savoya, we had to fly to London. But all flights from the Milan airport were cancelled because of a thick fog. We had to travel by bus to Torino, from where we took off to Frankfurt, and there we got on a plane to London. The Deputy Finance Minister Krassimir Katev also had emotions during the presentation of Eurobonds in Frankfurt, where he was with the deputy Minister of Economy Sofia Kassidova. During the presentation, which was attended by representatives of the investment funds of the top German financial institutions, such as Deutsche Bank, Dresdnerbank, and Commerzbank, Mr. Katev was asked if the Bulgarian Parliament had ratified the contracts with Chase Manhattan Bank and Morgan Stanley, which ensure the payments for the issue and the collection of investors' orders. He replied the contracts had not been ratified yet. A few minutes later he received a phone call from Bulgaria and was told that the former finance minister Muravey Radev was raising hell in Parliament on exactly that issue. Well, investors did not understand about that petty detail and by the end of Mr. Katev's meeting the National Assembly had practically ratified the contracts.And what would happen if they were not ratified?- That couldn't happen. The ratification could be delayed and in that case we would have to postpone the launching of the issue by a few days. However, this would not change its parameters. So, there was tension, but I have had more difficult moments in my previous work. In 1999 when I was working for Merrill Lynch, it was presenting the Romanian Eurobond issue in New York together with Deutsche Bank. Then, not a single investor came to the presentation.

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