The primary market of municipal bonds looks set to recover over the coming months following last year's local elections, powerful interest rate fluctuations and after increasingly attractive offers by banks eroded the appetite of local councils for loans from the capital market.
Timisoara is preparing a bond issue worth 200 billion ROL (5.5 million euros), with a similar issue also to be made by Alba Iulia. Over the coming weeks there will also be two smaller issues: Bistrita's 31 billion ROL (0.8 million euros) and Medgidia's 21 billion ROL (0.6 million euros).
"It was probably the silence after the elections that diminished the value of bond issues on the market. On the other hand, the banks have also made lending offers to municipalities with extended maturity terms of up to 20 years, something we will not be seeing any time soon from bonds because investors are not ready yet," said Bogdan Trandafir, an analyst with BCR Securities, the brokerage firm of the Romanian Commercial Bank (BCR). BCR Securities has a 51% share of the bond market in terms of handled bids.
The steep drop in interest rates on the monetary market has pushed many mayors to delay taking out loans in the hope of attracting cheaper financing.
"We, as consultants to some municipalities, have recommended that they wait longer until the market becomes stable," said Silviu Enache, manager of VMB Partners' capital market department, which provided advisory services to several local councils that issued bonds.
The falling interest rate trend on the market will also be felt by bonds. Over recent years, bonds have offered interest rates slightly above those for banking deposits, however.
The last substantial offering of municipal bonds was seen last June, when Bacau and Oradea issued bonds worth 239.5 billion ROL (6 million euros).
In the eight months since then there have been sporadic issues only, with a total value less than one million euros. Both Deva and Barlad issued bonds worth 0.47 million euros and 0.25 million euros respectively in the second half of last year, while the city hall of Aiud this year made an issue of 0.25 million euros.
The main investors in municipal bonds - mutual funds and insurance companies - have complained that they have no longer been able to find these instruments on the market.
"On the one hand, there have been no municipal bond or corporate bond offers on the primary market, while on the other, owners of these bonds are unwilling to sell, despite the visible demand on the market," said Sorina Constantin, a financial analyst with Certinvest. vlad.nicolaescu@zf.ro
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