Transcript: Interview with Slovak DMO Director Daniel Bytcanek

11 April 2025

By Marta Vilar – MADRID (Econostream) – Following is the full transcript of the interview conducted by Econostream on 31 March 2025 with Daniel Bytcanek, director of the Slovak Debt and Liquidity Management Agency.

Q: Mr. Bytcanek, a month ago you issued a 15-year benchmark bond for €3 billion with a record demand. How did that go?

A: It was a very good transaction because we did the right thing at the right time and the right place. Transactions of 15-year bonds have not been easy in our history because they’re not the standard tenor for benchmark issuances, but this transaction was extraordinary. We had strong demand, with an excess of €9 billion, very strong books with big investor names on them. The whole transaction was sound and clear. Given such strong demand, we considered the upper part of our targeted range of €2-3 billion to be the right size for this transaction. The spread fell from 140bp to 130bp. It was one of our best transactions in the last five years.

Q: Do you think you'll manage to retain such high demand in future syndications?

A: In theory, yes. However, we see many risks in the international market because the geopolitical situation is shaky. There’s also another strong factor: the spread of Slovakia, which is the second highest spread in the Eurozone.  Our economy is stable, and we are a member of the EU, so the risk for investors is limited. Therefore, the spread is a nice pickup for them. Then there is the risk of the war in Ukraine and how that affects our spread. Our expectation is that there will be still strong demand for Slovak debt in international markets but maybe somewhat weaker in the second half of the year. It will depend on the international situation.

Q: Is the expectation of a ceasefire going to have any impact on your issuance or demand? Is it already having an impact?

A: No. The impact is only felt in our spread. If you compare Slovakia with Estonia, which is a similar country but with slightly better rating, our spread was lower in February and the reason is that Estonia has a border with Russia.

Q: In your outlook for 2025, you say that you would also issue another bond of €5 billion with a maturity of 12 years. When should we expect this syndication to happen?

A: We usually deliver one strong spring transaction and a second strong benchmark transaction in autumn. We did one in February, so our standard would be return to the market again maybe in October or November with another benchmark transaction. We would like to raise another 3€ billion. The final size of the issuance is €5 billion; we issue €2-3 billion via syndication and then we tap this bond in following auctions. We might go for a single bond transaction in the 12-year tenor but there is another option: going for a dual-tranche bond, in which we are very experienced. It will probably be a combination of a 12-year bond and a 20-year bond, which would in total raise €3 billion. So, maybe €2 billion for the 12-year bond and €1 billion for the 20-year bond as a dual tranche. That’s the plan for the autumn. We will need €12 billion in 2025, and we have already raised €5.8 billion. We usually get half of this €12 billion via syndicated bond transactions and the other half via non-benchmark transactions.

Q: So, are you still pondering if you’ll go for a dual tranche or have you already decided that you will do that transaction?

A: We will decide it in late September. We will strictly observe the market and will follow recommendations of our primary dealers.

Q: If you indeed go for this dual tranche, would it be a new bond or a reopening?

A: It will be a new bond. Our standard is to open new lines of bonds through syndications.

Q: A bond with a maturity of 4 years is expected to be issued on June 2, according to your investor presentation issued in February. Could we expect any changes to that date?

A: No. We are very prudent in that regard. If we announce something, we do it. This 4-year bond is part of the programme we announced in December. So, there is a fixed date of the auction for June 2. It will be a new bond but will not be issued via syndication, we will do it via auction. But it will not be a typical auction, it will have some remuneration for our primary dealers. This bond is not a benchmark transaction, but the reason why we go for it is that we have a small gap in our redemption profile beyond the 4-year tenor. We cannot fill this gap with a benchmark transaction. The other reason is that there is strong demand for Slovak debt in our region, namely in the Czech Republic, Austria… The market is missing shorter-term debt, and we will be there with this special transaction.

Q: Speaking of other transactions, you also opened two new retail bond lines with maturities up to 5 years in the first half of the year. Could you give us any details about how these are going and when exactly we should expect you to tap this market again?

A: Yes, we issued two bonds three weeks ago. Originally it was planned to be sold during an entire month, March, but strong demand led us to sell it in only three days and a half. The first bond was a 2-year bond of €250 million and the second one was a 4-year bond of €250 million. So, we sold €500 million in three days and a half. The fact that it was sold so quickly could be due to good advertising in Slovakian media but also because there was no taxation and no fees in the primary market. So, no additional cost for individuals who bought these bonds. It was an extremely successful transaction, and after it we announced that we will prepare a programme for retail investors, but the next transaction won’t be until spring next year.

Q: Where exactly in your strategy could you be more opportunistic?

A: €24 billion of our debt is parked at the ECB and we are losing approximately €1-1.5 billion annually. So, we must replace this and find new investors for a minimum of €1-2 billion. We have to diversify more our investor base. So, we will be more opportunistic in this sense in the coming years, maybe with private placements. We are reaching out to different types of investors and will prepare transactions for them of up to €500 million.

Q: The opposition has recently criticised the interest rate at which you are delivering your issuance and has regarded it as ‘unfavourable’ to Slovakia. Do you think you have room to lower your financing costs?

A: The motivation for such expression is political fighting between the opposition and the coalition. We do have to consolidate our public finances further. Our spread has to be comparable with a country like Slovenia. We have to continue with the consolidation plan to cut down our deficit more rapidly. On the other hand, I don’t see much space for improvement, because we have one of the lowest debt service costs in the whole EU after AAA countries. Our total cost of state debt is currently 2.15% and the cost of our bond portfolio is around 2.5%. We have to take into account there are geopolitical risks and we are also in the process of consolidating our public finances.

Q: Speaking of geopolitics and defense, recently your prime minister proclaimed himself in favour of higher defence spending. How will this impact on your issuance?

A: We don’t have too much space for special bond issuances to cover defence needs because our defence budget is already above 2% of our GDP. We fulfill NATO criteria. Therefore, the impact will not be so big in our issuance because there is no space. Even if this defence spending were accepted, we wouldn’t be in a rush to issue because we are maintaining a relatively high liquidity buffer around 10%, so we don't have to react immediately.

Q: Should we expect you to issue a defence bond anytime soon like other sovereign issuers are doing throughout Europe?

A: No. The probability is close to zero.

Q: In your strategy for 2025 you also say you will be more active in foreign currency issuance in order to diversify your investor base. What should we expect in this regard?

A: Last year we returned to the Swiss market with a very successful transaction. Instead of raising CHF500 million we raised CHF650 million. We also plan to deliver issuances out of the euro market this year, but we will spend a lot of time with the retail programme and our transaction in February was more successful than we expected before. Therefore, we still have space for a €500 million transaction out of the euro market. We probably won’t make a decision until the end of the summer. We might go for a private placement, and we also see market opportunities in the Czech Republic. That is one possibility. Another one would be returning to the Swiss franc market, but the likelihood of doing this in the coming months is relatively low. The sterling market is also interesting, because we want to get to UK investors. German-speaking markets like Germany or Austria are very important for us, but the UK is the second most important. The third one is Benelux.

Q: What about the timing?

A: I don’t think there will be any space to do this until the end of the summer. We will probably decide in late spring or after the summer.

Q: Has the ECB’s QT affected your issuance strategy in any way?

A: Yes. We have to find new investors to replace the ECB in our portfolio because there is currently €24 billion of Slovakian debt at the ECB. We have to find new investors and to do this we are planning to return to the US market. We did a 10-year benchmark transaction in USD in 2012. We will probably find the right timing for that transaction in 2026. We have no specific plans on the table for now. It’s not easy to sell bonds in the US, so we have to find good timing in terms of spread and we have to see results in our consolidation process.

Q: Your rating outlook is at ‘stable’ according to Moody’s, S&P and Fitch. Do you expect an upgrade anytime soon?

A: I don't expect any changes until the end of the year, given that we were penalised last year twice because of public finance developments. I expect the stable outlook to remain in 2025. Next year the most important factors for rating agencies will be our consolidation plan and the potential end of the war in Ukraine, which would help us significantly.

Q: Are you planning any innovations with regards to your issuance strategy lately?

A: No. As I mentioned before, we could deliver some FX transactions and we will continue with the retail programme because it was extremely successful.

Q: Do you have any plans regarding the green bond market?

A: No, we are quite conservative in this regard because we consider green bonds to be more a political project. We don’t have enough green projects and the state budget already has space for the current ones.