Transcript: Interview with Slovenian DMO Director General Marjan Divjak
28 February 2025
By Marta Vilar – MADRID (Econostream) – Following is the full transcript of the interview conducted by Econostream on 27 February 2025 with Marjan Divjak, Director General of the Treasury Directorate of Slovenia's Ministry of Finance:
Q: Some sovereign issuers did execute some pre-financing for 2025 already last year, but that was not your case. Why didn’t you?
A: In 2024, Slovenia prioritized strategic debt management over pre-financing for 2025, leveraging its strong liquidity position. In other words, there was no need to raise additional funds. Instead, Slovenia focused on optimising its debt portfolio through targeted transactions, which enhanced its position in the capital markets. Given the ample fiscal buffer, the funding needs were reduced from the original estimates, which accelerated the reduction of the general government debt to 67.3% GDP.
Q: In your financing programme for 2025, you say that predictability is the main principle of your strategy, but you also combine it with the ‘highest possible level of flexibility’. Is there some particular aspect of your issuance strategy in which regard you are especially flexible?
A: Slovenia largely maintains a predictable issuance pattern in funding program execution to provide as much clarity as possible to investors. The main testament to this strategy is a traditional early January funding window. Because Slovenia is a very small and very open economy, it also incorporates flexibility to transaction execution strategy to adapt to market conditions. Flexibility in issuance strategy is reflected in the highest ability to tap markets when the demand is strong and to have resources to weather less conducive market backdrop.
Q: Considering that predictability, what can investors treat as a given from Slovenia in 2025? Are there any transactions which investors can already expect to happen this year?
A: Slovenia in January 2025 executed a 30-year SLOREP transaction during the predictable funding window. Investors can from here expect that Slovenia will continue issuing euro-denominated bonds, focusing on maturities that align with the debt management strategy and cost-risk efficient funding program execution. Slovenia could, subject to market conditions, tap the Samurai bond market also this year. In addition to that, Slovenia has expressed a commitment to being a regular issuer of ESG bonds, aligning with its environmental and social objectives.
Q: Are there any syndications already planned for 2025?
A: The first 30-year SLOREP syndication was executed in January 2025. Another benchmark size syndication can be expected this year.
Q: Which part of the curve is now drawing more attention and demand from investors?
A: Most of the demand is in the 10-year sector of the curve but recent market activities suggest that longer-dated tenors also are attracting significant investor interest.
Q: Some weeks ago, Slovenia issued its first euro 30-year benchmark tranche since 2020, and the first euro 30-year benchmark tranche issued by a sovereign in 2025. Why did you take that step?
A: Slovenia capitalised on favourable market conditions and strong investor demand for long-dated securities by issuing a 30-year SLOREP benchmark bond. The objective was to manage the redemption profile and to extend the average maturity of the debt portfolio, hence reducing refinancing risks.
Q: Are you happy with how the transaction went?
A: The transaction was indeed highly successful. The 30-year bond issuance attracted orders at the peak of demand exceeding €3.2 billion, allowing Slovenia to secure favourable pricing and issued €1 billion SLOREP at a coupon rate of 3.500%. This strong demand reflects investor confidence in Slovenia's economic stability and fiscal management.
Q: Given the investor appetite for long-dated tenors, do you envision Slovenia issuing more of this or other long-term bonds in 2025? Maybe even longer?
A: The long-dated SLOREP bond transactions will in the future depend on market conditions and the demand of investors. The baseline scenario is that in the medium term the existing long-dated bonds are increased in size to enhance secondary market liquidity.
Q: Last year Slovenia issued its first senior notes denominated in Japanese yen, known as Samurai bonds. Should the market expect you to tap this market again in 2025?
A: The strategic objectives of the debt management strategy are to diversify its investor base and funding sources, and in this context, Slovenia remains open to exploring such opportunities if market conditions are conducive and the cost of funding is comparable to the cost of funding in euros.
Q: Back in January you said that you are planning to issue a sustainability-linked bond at the end of April. Do you still stick to that date?
A: Slovenia remains committed to the plan to issue a sustainability linked bond, where the timing of the transaction depends on market conditions and other factors. Preparations are underway to ensure compliance of the SLB framework with the goals of Slovenia's sustainable development and the fulfilment of investors' expectations.
Q: You also said you would likely opt for 10-year maturity to raise up to €1.5 billion. Is that still the plan?
A: The current plan is to issue a 10-year sustainability-linked bond, aiming to raise between €1-1.5 billion of funding. This maturity is on average proxy for cost-risk efficient funding and aligns with Slovenia's debt management strategy. It is also the tenor where the most demand from investors is expected.
Q: You are the first sovereign issuer in the EU to issue such bonds. Why have you chosen to do this?
A: Slovenia is committed to promoting sustainable development and addressing environmental and social challenges. In our view, other instruments in addition to the use of proceeds instruments are needed to meet global sustainability targets which in our view are of the highest relevance for our planet.
Q: Do you think others will follow?
A: We hope that Slovenia's experience may serve as a model for others issuing sustainability-linked bonds. If we can do our part in this instrument to gain importance, we, given the size of Slovenia, did achieve the most.
Q: Last year you also issued the first sovereign digital bond in the EU. Were you happy with this transaction?
A: We are delighted that we had the opportunity to participate in the ECB experimental programme and that Slovenia issued its first digital bond. The transaction was an important step in exploring of blockchain-based sovereign debt settlement systems, which could in the perspective increase efficiency, transparency and security as the systems become more integrated.
Q: This bond expired in November 2024. Are you planning to deliver another digital bond issuance soon?
A: At the Treasury Directorate, we are to continue with capacity building in the field of blockchain technologies and incorporate these into a broader debt management strategy. While no specific date has been set, given the success of the first digital bond, further issuances are to be considered.
Q: According to your own experience, do you think digital bonds will become a popular instrument?
A: Digital bonds have significant potential to gain popularity due to their efficiency, reduced transaction costs, and enhanced security. However, broader adoption will depend on regulatory frameworks, infrastructure development, and market acceptance. Slovenia’s pioneering issuance serves as a test case for the wider adoption of digital sovereign debt.
Q: You are a very innovative issuer. Will you deliver any other innovation this year or anytime soon? If so, in what regard?
A: In terms of debt management operations, we are to continue to seek the most cost–risk efficient solutions. The most prominent approach was at liability management transactions during 2016 – 2018 which were instrumental for the position of Slovenia on capital markets and for which the Treasury Directorate was awarded Sovereign Risk Manager of the Year 2017 by Risk Magazine London. In the near term, future innovations may include the expansion of sustainability-related instruments and further digital bond issuances, blockchain-based settlement processes. Further steps toward full alignment of the sustainable (green) bond framework to EU Taxonomy are planned.
Q: Are you planning any buybacks in 2025? If so, which instruments are you planning to buy back?
A: Slovenia conducts liability management operations as part of its debt management strategy to manage the refinancing risks and redemption profiles and to support the liquidity of the SLOREP secondary market. The liability operations are normally structured as exchange transactions. While specific exchange operations for 2025 have not yet been announced, they will probably focus on bonds approaching maturity and those with suboptimal liquidity in the secondary market.
Q: Your target was to extend the modified duration of the portfolio to 7.7 years in 2024. Will you extend that further in the years to come, or are you happy with the current duration?
A: Slovenia during the low interest environment issuing debt of 20, 24, 30, 40 and 60 years of maturity significantly improved the risk indicators. Average weighted time to maturity (AWTM) peaked at 10.1 years in 2022 and modified duration (MD) at 8.9 in 2021. Currently, the Financing Programme is being executed in a cost–risk efficient way where the proxy for cost–risk efficient funding is a 10-year sector of the curve. Slovenia is also present in the 3-year segment of the curve while this year the Republic also issued bonds of 30 years of maturity. The AWTM and MD under this regime need by definition to decline. There is also an effect of the passage of time and higher coupons. In the medium–term, modified duration is expected to decline further.
Q: The longest-dated bond in your debt portfolio is one maturing in 2081. Are you planning to reopen it anytime soon? If not, maybe another of your longest-dated bonds?
A: The ultra-long sector of the curve is due to high convexity interesting for certain types of investors but because of very low cash price difficult from the issuers' perspective. Slovenia can consider tapping this segment of the curve to a minor extent on a reverse inquiry basis as part of liability management operations. The main objective of this kind of activities would have been to add liquidity in this part of the curve.
Q: Only 2.3% of your debt is denominated in USD, and the currency has skyrocketed against the euro in the last few months. Does this have any impact on your planned issuance in dollars this year?
A: The strategic debt management objective is every three years subject to market conditions to appear on the global debt capital market by issuing the SLOVEN USD benchmark bond of a minimum of 1 billion issue size. The main criteria are the cost of funding in USD on the cross-currency basis compared to funding in EUR.
Q: Do you expect to issue in another currency other than euros, USD, or yen?
A: There is a possibility that Slovenia issues in Panda bond format.
Q: The share of foreign investors in your investor base has decreased from 80% in 2014 to 56% in 2024. Are you satisfied with this decline?
A: The shift in investor composition to a great extent reflects the monetary policy operations of the ECB. The Bank of Slovenia’s purchases led to a greater share of sovereign bonds being held by domestic institutions, naturally reducing the relative proportion of foreign investors. This shift is a common effect of QE, where central banks become dominant buyers, altering the investor composition.