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Finance Ministry: Bond Issue Continues

Ljubljana, 01 May (STA) - Slovenia's issue of dollar bonds continues, the Finance Ministry said in a statement on Wednesday, a day after the sale was suspended as rating agency Moody's downgraded Slovenia's debt by two notches to $junk$.

On Slovenia's part, the issue continues and is not suspended, the ministry said, but refused to give any additional explanations due to US regulation regarding such financial transactions.

The rating agency unexpectedly downgraded Slovenia's credit rating from Baa2 to high-risk Ba1 with a negative outlook.

It based the downgrade on "the state of Slovenia's banking sector", "the marked deterioration of Slovenia's government balance sheet" and the "uncertain funding prospects that heighten the probability that external assistance will be needed".

The key reason for the downgrade was an "ongoing turmoil in the country's banking system and the high likelihood that the sovereign will be required to provide further assistance and capital injections".

Slovenia's ratings by the remaining two big agencies, Fitch and Standard & Poor's, remain in the upper medium grade.

Due to the downgrade, Slovenia was forced to suspend the issue just before the final price was set for 5- and 10-year dollar bonds with initial yield guidance around 5% and 6.125%, respectively.

Unofficially, the bond sale was going well and media reports suggest orders amounted to USD$6bn. Slovenia was planning to issue up to USD$3bn in bonds.

Some analysts believe that Moody's move was an intentional and orchestrated undermining of Slovenia's dollar bond and that it was a deviation from the standard practice, when countries are informed about a potential change in rating in advance.

Others meanwhile believe that the Finance Ministry knew about the potential downgrade and wanted to sell the bonds before it was published.

Moreover, the Wall Street Journal quoted Yves Lemay, managing director for Europe-Middle East-Africa sovereigns at Moody's saying that the firm followed its usual procedure of informing Slovenia's government before publicly announcing the downgrade.

The Finance Ministry issued no comment about whether they knew about the downgrade, according to the web site of the business daily Finance.

Under existing regulation, countries must be informed about the change in debt rating 12 hours in advance.

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