EuroWeek can reveal that the Republic of Portugal is set to make a rare appearance in the loan market within the next few weeks. Around 10 banks have bid, individually and collectively, for the prestigious mandate with a deal size expected to emerge of between Eu1bn and Eu2bn.
For European loan bankers the prospect of an AA/Aa2 rated Euroland sovereign zero weighted facility is enticing and liquidity for the facility will be deep. The rarity of the asset combined with a depressingly quiet first half of the year in the loan markets, with volumes down by around $17bn compared with the first half of 2001, should mean appetite for Portugal will be intense.
Exactly why the republic is returning to the loan market is not clear, although an existing facility is due to mature in October. Indeed it should be able to raise debt more cheaply through the bond markets, where its paper trades at sub-Libor rates. However, it does have a track record of using the loan markets as an additional source of capital and this latest transaction probably demonstrates Portugal's willingness to continue to engage with the bank market where it has built up strong relationships with key institutions.
"Portugal is one sovereign which does use the loan market from time to time," said a banker familiar with the borrower. "Partly this is just to keep the bank market involved and on side beyond any obvious funding requirements that it has."
The republic may have chosen such a quiet market in order to attract maximum bidding interest and liquidity into the deal.
Bankers close to the bidding expect that the republic will achieve pricing at even tighter rates than on its last Eu1.5bn deal. That three year bullet paid a margin of 2.75bp over Euribor plus a 2.75bp facility fee. It was launched in July 1999 and signed in October that year.
Arrangers were ABN Amro, BayernLB, Caixa Geral de Depositos, DePfa, Greenwich NatWest and WestLB.
