Hungary issued Yuan-denominated government securities of CNY 1bn, or EUR 136.8 million, on the Chinese market and they were oversubscribed by more than two times, Minister for National Economy Mihály Varga said.

As the Minister pointed out, the issuance has been part of the Government’s debt management strategy, thanks to which interest payments on state debt as well as the share of forex debt within the total volume have been declining.

DownloadPhoto: Géza Dede/Ministry for National Economy

In 2011, the share of forex debt within the total amount was 52 percent, due mainly an IMF-EU loan facility. This indicator fell to 40 percent by 2014 and to 35 percent in 2015. This year, Hungary has already repaid the last instalment, EUR 1.5bn, of a European Commission loan and redeemed another one of GBP 500 million.

From this Yuan bond Hungary is to finance a part of forex debt maturing this year, while the rest is set to be covered by issuance on the forint market, therefore the share of forex debt will further decline, Mihály Varga added.

DownloadPhoto: Géza Dede/Ministry for National Economy

Hungary is the first in the Central and Eastern European region to issue a Yuan-denominated sovereign bond. The transaction is significant even from an international perspective, as this has been the first major issuance and public offering since turbulences on the Chinese markets at the beginning of the year. Transaction conditions are favourable, and Hungary’s State Debt Management Agency (ÁKK) has swapped the Yuan debt into Euro debt: accordingly, Yuan exchange rate fluctuations do not pose any risks, and interest rates are in line with conditions on the Eurobond-market.  ÁKK and Bank of China were mandated to manage the issuance. The security’s tenor is three years, with a yield of 6.25 percent, Mihály Varga said.

DownloadPhoto: Géza Dede/Ministry for National Economy

As the Minister noted, the transaction conforms to the “Opening to the East” strategy of the Government, as thus Chinese-Hungarian relations can strengthen also in the field of financial policy. The Chinese market is important for Hungarian sovereign bonds also in the long term, as another source of funding. This bolsters the safety of debt management and increases investor diversity. The issuance is also expected to help Hungary reach more Asian investors.

(Ministry for National Economy)