Bulgaria will issue Eurobonds worth 250 million euros within days, the Finance Ministry announced last Friday. The issue is envisaged in the 2002 budget.

The maturity period will be set just before the issue is floated and will be three to 5.5 years depending on the market situation. The issue will bear a maximum interest of 8-8.5 per cent.

Last Thursday, Bulgaria commissioned JP Morgan and Morgan Stanley to co-manage the issue of the euro-denominated Eurobonds. The government will ask Parliament to ratify the contracts with the two investment banks.

Other European or U.S. banks could be commissioned as secondary issue managers, the Finance Ministry said in a press release. JP Morgan and Morgan Stanley were chosen after direct negotiations. The issue terms that were negotiated are much better than those agreed with the previous government but they will not be announced before the actual issue of the bonds.

The income from the bond issue will be used to strengthen the fiscal reserve and refinance future government debt. In 2001, Bulgaria repaid $680 million in principal on its foreign debt while principal repayments in 2002 total $580 million, the press release said. The issue is coordinated with the IMF.

Gaining a stable foothold on international capital markets is a necessary step for Bulgaria, as it will reduce dependence on crediting provided by the IMF and the World Bank. Eurobond issues totalling 700 million euros are budgeted for 2002.

Explaining the choice of issue managers to the Parliament, Finance Minister Milen Velchev noted that JP Morgan and Morgan Stanley are the top two banks in the world when it comes to emerging markets issuing bonds.

Velchev noted that the two banks will get a commission of 0.45 per cent whereas the commission under a similar contract signed by the Ivan Kostov government in 1997 was 0.75 per cent. The interest rate is eight per cent, while the best the United Democratic Forces could do was 10 per cent, Velchev said.

The percentage difference, however, was not as much of a concern. It emerged that the finance minister's brother, Georgi Velchev, works for Morgan Stanley, and the wife of the deputy finance minister, Krassimir Katev, is also an employee at the London-based investment bank.

In a statement from two weeks ago, the Morgan Stanley corporate communications department confirmed that Georgi Velchev works for the bank. Morgan Stanley denied the information that the bank had been the broker for Brady buybacks on behalf of the Bulgarian government back in September. The statement was made prior to the announcement of the selection of Morgan Stanley to underwrite the Eurobond issue.

In an official statement last Friday to Intellinews, a news and information service, a spokesperson of the bank said Morgan Stanley was one of the first banks to begin working on the Bulgarian market seven years ago, and it has built a solid relationship with the country. "We have underwritten a total of 22 Eurobonds issues in total value of $6.5 billion in emerging markets in 2000 and we are very delighted we have got the mandate for this Eurobond issue, too," the spokesperson said.

Milen Velchev was scheduled to visit the largest European investment centres, starting November 7, in relation to the eurobonds issue. His program featured visits in Athens - November 7, Milan and Frankfurt - November 8, and London - November 9.

"The market environment is good for a Eurobond issue, the situation in Argentina will not affect the interest in the Bulgarian issue," said Velchev.

Asked if the parallel Latvian Eurobond issue will dampen investor interest in the Bulgarian one, Velchev said that Latvia's investor base is quite different. Its rating is "3B," five levels above Bulgaria's, and is "investor type," whereas Bulgaria is "non-investor type" and therefore different types of investors are attracted by its bonds.

"Few countries are issuing debt, so bonds carrying a risk like Bulgaria's are much in demand," the finance minister said.