Varga: Hungary issues CNY 1bn worth of 3-yr yuan bonds at 6.25pc yield

Budapest (MTI) – Hungary has issued 1 billion yuans worth of a three-year yuan-denominated bond with a yield of around 6.25 percent, Economy Minister Mihály Varga told a press conference on Thursday.

The issue was organised by Hungary’s Debt Management Centre AKK and the Bank of China, and the bond was oversubscribed 2.5-fold, the minister said. The actual yield will be lower than the 6.5 percent issue target.

Varga said Hungary is the first among central and eastern European countries to issue a bond denominated in the Chinese currency. He added that there is a chance that Hungary would issue a Panda bond in China before the end of the year. There is a possibility to issue an additional 2 billion yuan worth of bond but Hungary does not play to fully utilise this, he said.

The AKK has converted yuan debt to euro in a swap deal, so the development of the yuan’s exchange rate will not pose risks and the interest conditions are in line with euro-market conditions.

Varga said the yuan issue had been planned, with AKK and the Bank of China organising successful investors’ meetings in Singapore and Hong Kong in January to assess the market. Prior to this, the Hungarian prime minister and the chairman of the Bank of China signed a letter of intent in November 2015 about a Hungarian bond issue denominated in renminbi.

The current issue will function as a benchmark for the upcoming period considering that this is the first issue since the Chinese market disturbances earlier this year. Hungary wants to participate in the renminbi bond market becoming international and the issue also represents a milestone in Chinese-Hungarian financial relations, he added.

Varga said the issue will further diversify the investor structure of Hungary’s public debt and fits well in the policy of public debt management developed in recent years which resulted in Hungary being able to finance its public debt at 2 percent average interest this year.

The transaction is part of Hungary’s opening to the east policy. The Chinese market is important for Hungarian bonds in the long term, representing an additional possibility for drawing in resources, which improves the security of debt management and is expected to help expand the circle of Asian investors.

From the yuan bond issue, Hungary will be able to pay part of its FX debt maturing this year and the AKK will pay the remainder from the forint market, Varga said. No significant issue is planned this year but Hungary does not want to exclude the possibility of swapping existing state securities with others carrying more favourable interest, he added.

In response to a question, the minister said the government will review in the first six months experiences gained from issuing residency bonds. It will assess the volume and conditions at which residency bonds were subscribed and may initiate legislative amendments if necessary. He noted that the reason residency bonds had been issued went beyond the reasons for regular bond issues.