European Sovereigns’ Sobriety Test Sop
Ratings agency S&P emphasized in its annual European sovereign borrowing publication that new commercial exposure will drop 1.5 percent for the first time since the crisis even though outstanding stock will jump half a trillion euros to EUR 9.5 trillion this year. In 2012 long-term issuance was EUR 1.25 trillion for the 45 countries followed, higher than estimated then due mainly to ESM operations and 2013 pre-funding after the central bank committed to unlimited bond-buying. Greece and Portugal managed to retain access and Denmark and Poland went for more than originally thought. In contrast Russia’s appetite was only half the EUR 50 billion forecast, and the UK reduction was similar. Over the coming months EUR 1.25 trillion will be raised, with fiscal consolidation curbing needs in Italy and Spain while they remain flat in France and Germany. Russia and Turkey however will tap markets for 50 percent more than last year and a “benign” global liquidity backdrop could again aid placement by riskier Balkan and Central European names, including Hungary, Romania, Serbia and Slovenia, according to the outlook. Maturing debt will hit a record EUR 825 billion or 5 percent of the continent’s GDP, and since 2006 the total is up 65 percent. The short-term share is 8 percent and the official one is now 5 percent after EU-IMF support. Speculative-grade sovereigns account for almost 40 percent after demotions and the average rollover ratio is almost one-tenth of the aggregate, with Belgium and Cyprus among the highest in the category, and Estonia and Latvia at the other end with requirements under 2 percent of GDP. Borrowers with small domestic capital markets like Serbia have majority foreign-currency liabilities and with exceptions like Turkey instruments are mainly fixed-rate.
Slovenia has been on the front line after the Cyprus debacle and a failed auction which was later reversed as state banks oversubscribed EUR 500 million in 18-month Treasury bills and the government hired underwriters for an international road show with the investment-grade rating intact. Public debt is 60 percent of GDP, but ailing NLB which failed a previous stress test awaits at least another EUR 1 billion injection to hike the load according to Fitch Ratings. CDS spreads have jumped 50 percent to 350 basis points as new Prime Minister Bratusek, a trained economist, took the helm on a reluctant austerity, recapitalization, and privatization platform. NPLs are 30 percent of portfolios, the OECD estimates and a central asset-disposal arm has been slow to evolve. Since splitting two decades ago from the former Yugoslavia, the scenic Alpine location has spurned foreign direct and portfolio investment opening and allowed plebiscites to overrule official measures. Its stock exchange which is a bottom frontier performer imposed a minimum one-year holding period and the sale of a large grocery chain to a Croatian buyer was refused in 2011 by unions unwilling to experience the jobs and pensions hangover.
