Romania has, over the last year, managed to compensate for an uncompromising domestic bond market by achieving some success in the Eurobond market over the last year.
"You basically have T-bills going out to 12 months," says James Stewart, vice president at Raiffeisen Zentralbank Österreich (RZB) in Bucharest. "The government has a weekly auction - for three months and six months last year, while this year it is trying to force up the six months, cut back on three months and increase its euro issuance."
The ministry of finance is quite liquid at the moment, Stewart adds, because its Eu1bn-plus Eurobond fundraising has met its borrowing needs externally.
Stewart believes there are good opportunities in developing a bond market in Romania in the long term, but for now there are two questions: if you issue at three to five years, who will buy the bonds when an institutional investor base barely exists? There has been no pension reform in the country yet and there is not likely to be in the next 12 months.
The second is to decide the yield to pay at a time when interest rates are falling, from around 50% last year to 35% at present.
"Romania has quite a lot of debt and domestic government borrowing," says Sharon Raj at Fitch in London, "but over two-thirds of it is for less than one year."
She adds: "There is a small amount of domestic debt (3%-4%) in foreign currencies, but most of the longer term bonds are bank restructuring bonds."
The government would like to extend its yield curve out beyond one year but - lacking as credible a fiscal policy as neighbouring Bulgaria - it will not be easy.
As a result, the government has had to rely on external sources to fund its budgetary needs. The 2001 deficit target of 3.7% will be met by World Bank grants, cross-border loans and especially Eurobonds.
Romania's successful return to the international capital markets with three deals over the last year has been a swift recovery from the days in 1998 when the country was near to default.
After two years of failed efforts by banks to issue a bond for the republic, Deutsche Bank in September last year raised Eu150m of three year bonds that pay a hefty coupon of 11%.
Romania was back in the market two months later with a Eu150m 11.55% five year transaction lead managed by ING Barings and Schroder Salomon Smith Barney. The deal was increased shortly afterwards to Eu300m.
The republic's last deal - and the only one planned for 2001 - came in the undoubted benchmark form of a Eu600m 10.625% seven year offering via Credit Suisse First Boston and JP Morgan. Investors flooded into the deal, attracted by its size, and the scarcity value of high yielding eastern European credits.
Earlier in March, electricity generator Termoelectrica raised Eu150m in three year bonds through Deutsche Bank and JP Morgan.
Termolectrica had a specific state guarantee. But state owned oil and gas company SNP Petrom - which was planning a Eu150m five year bond issue in September - does not. As a result, it was expected to have to pay 150bp over the sovereign curve. NP