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Loan to help buy back maturing FNM bonds

The National Property Fund (FNM) is looking to both Slovak and foreign finances for a 100 million euro loan as it tries to buy back privatisation bonds to the value of five billion crowns - an enormous 30% cheaper than if it waited for the bonds to mature.
FNM president Jozef Kojda said that while talks were being held with banks and lending institutions, both his agency and the Finance Ministry would be loathe to take the loan at an interest rate of more than 8%.
Predicting that negotiations on the loan would be concluded within weeks, Kojda added that a new law would allow citizens to use unredeemed FNM bonds to meet their tax arrears - further lowering the amount the FNM would have to pay out.

The National Property Fund (FNM) is looking to both Slovak and foreign finances for a 100 million euro loan as it tries to buy back privatisation bonds to the value of five billion crowns - an enormous 30% cheaper than if it waited for the bonds to mature.

FNM president Jozef Kojda said that while talks were being held with banks and lending institutions, both his agency and the Finance Ministry would be loathe to take the loan at an interest rate of more than 8%.

Predicting that negotiations on the loan would be concluded within weeks, Kojda added that a new law would allow citizens to use unredeemed FNM bonds to meet their tax arrears - further lowering the amount the FNM would have to pay out.

Analysts are expecting that the government should be able to take the loan, certainly abroad, with an 8% rate. The Fund is perceived as a quasi-sovereign entity, and with bonds in both state-controlled gas utility Slovenský plynárenský priemysel and rail company ŽSR trading at 8.20-30 on the offer side, and euro denominated Eurobonds below that 8% rate, there is a distinct possibility that the loan rate target can be achieved.

Even with the question marks over the loan interest rate, the move seems to have left the government in a win/win situation, with even a higher rate still leaving them with a massive saving.

"The best course of action for the government is to redeem the bonds, because they are still very cheap," said Ján T-th of ING Bank in Bratislava. The analyst added: "Since the bonds are so cheap, almost any way of financing will be good - even if they get euros or dollars at 10%, it will still be good."

However, he questioned whether or not the government had chosen the optimum solution for paying back its debt.

"The best option for the government would be not to borrow money but to use funds from privatisation - but that is a question of timing. If that were the case, maybe the option of a bridging loan would be good, but I think it's unlikely that this path will be taken," he said.

The government has so far been reluctant to commit itself to using privatisation funds for paying back state debts and with the closest privatisation, that of telecoms monopoly Slovenské telekommunikácie (ST) in its final stages, the loan seems to be the sole option for the bond buy-back. However, Kojda added that funds from ST had been earmarked to pay back the loan itself.

The FNM bonds the government is looking to buy back mature on January 1, 2001. Because of the early redemption the agency will be buying them at market price, currently lower than par value.

The FNM has so far redeemed 29,398 bonds this year, and following approval of a revision to the law on administration of taxes and fees, the number of redeemed bonds should rise significantly, Kojda said. Parliament is scheduled to vote on the revision later this month.

Kojda added that in the last three months the fund has signed contracts for the redemption of over 100,000 bonds.

The issue of special bonds was approved by the government of Vladimír Mečiar in 1996 in lieu of originally approved coupon privatisation. The FNM issued almost 3.3 million bonds as a compensation for the second wave of the coupon privatisation, each with a par value of 10,000 crowns.

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