What is the connection between a ski slope in Predeal, a beach in Mangalia, the two leading banks in Romania and the stock exchange? Municipal bonds. For the first time since WWII, two resorts in Romania, Mangalia and Predeal, state their independence from the state budget for infrastructure investments.
Advised by Banca Comerciala Romana (Romanian Commercial Bank-BCR) and by Banca Romana pentru Dezvoltare (Romanian Development Bank- BRD)- Groupe Societe Generale respectively, the municipalities in Mangalia and Predeal will issue municipal bonds worth 10bn lei and 5bn lei this fall.
Whereas in Mangalia municipality's case the funds obtained from the sale of bonds will be used for arranging the beach in the south of the city and partially for building the gym of the Callatis Highschool, Predeal Town Hall decided to invest the money in building two new ski slopes.
"The money will be used to increase the number of ski slopes. The tourists coming to Predeal during the 2001-2002 season will have 3 ski slopes available - two new and one rearranged, far better then the existing slope," Simona Andone, head of the economic department within Predeal Town Hall, told Ziarul Financiar.
The works on the two slopes have practically begun quite a while ago, with the payment to be made by using the money raised from the bond issue. Both bond issues are to be listed on the Stock Exchange.
"Municipal bond issues were not possible to release until now, as the Stock Exchange is still young and there was no way to find those brokers to provided the security and the smooth running of such an action. Furthermore, we did not have the legal basis to allow us to conduct such operations," Stere Farmache, Bucharest Stock Exchange general manager, told Ziarul Financiar.
The face value of the bonds to be released by the Mangalia municipality will reach 100,000 lei. Half of the 100,000 bonds of the issue will mature in 12 months, while the other half will mature in 24 months after the conclusion of the offer.
"The interest for these bonds will be calculated as a ratio of the active and passive interests on the interbank market - BUBID/BUBOR - in addition to two percentage points. Were we to calculate it now, we could be talking about 36%-37% interest. Everything will be completed in the red herring most likely to be ready early in October," said Dan Bunea, head of the Capital Markets Department within BCR.
Simona Androne, head of the economic department within Predeal Town Hall, says the bonds to be launched by the municipality will reach 100,000 lei in par value and mature in 18 months.
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