Slovenia borrowed $3.5 bln on international markets on Thursday to shore up its ailing banks and stave off a bailout, bouncing back to finish an issue it had aborted two days earlier after Moody's cut its credit rating to junk.
The bonds will fund Prime Minister Alenka Bratusek's government at least until the end of the year and give it time to pursue unpopular cost cuts and the long-delayed sales of some of the state firms that make up around half of the economy.
However, the issue could prove a mixed blessing for the tiny euro zone state as it may actually reduce the pressure on Bratusek's four-party coalition to enforce reforms quickly, analysts said.
Following the chaotic rescue of fellow euro zone member Cyprus, Ljubljana had fallen under intensifying pressure from investors who raised the tiny Alpine nation's borrowing costs close to unsustainable levels last month.
But in a sign of confidence – and thirst for yield – investors offered bids totalling more than $16 bln for the issue, allowing the finance ministry to pay less than initially envisaged despite Tuesday's two-notch ratings hit.
Slovenia sold $1 bln in 5-year, 4.75% coupon bonds to yield 4.95% and $2.5 bln in 10-year, 5.85% coupon bonds to yield 6%, cheaper than initial price guidance of 5.125% and 6.25%. The yield was above Spain's 4.041 and Portugal's 5.734%.
"If anyone had any doubts about the investors' thirst for yield, this is proof," said RBS Analyst Abbas Ameli-Renani. "A country that was being compared to Cyprus only a month ago received demand for its bonds almost equivalent to a third of its GDP."
Bratusek will unveil her stability programme on May 9. It will then be reviewed by the European Commission.
At the top of her to-do list is the need to heal the three state-owned banks that dominate the country's lending sector and carry the lion's share of the sector's bad loans, which amount to about 20% of Slovenia's annual output.
It has also postponed the announcement of a comprehensive plan to sell state assets – something Slovenia alone among former Communist countries has refused to do since its 1991 independence.
In explaining its rating cut, Moody's said bad loans in the two main banks, Nova Ljubljanska Banka and Nova Kreditna Banka Maribor, had reached 28%. The entire lending sector's non-performing credits total around 7 bln euros. The government has suggested it may sell one of the three main banks, NLB, NKBM or Abanka Vipa, this year.
