THE MAYORALTY HAS TO EXCHANGE 2.2 BILLION LEI, AFTER THE BONDS ISSUE The rise of the Euro throws a monkey wrench in the plans of the Mayoralty of Bucharest

The evolution of the Euro has messed up the plans of the Mayoralty of Bucharest, which has refinanced in lei a loan made in Euros, precisely to escape the currency risk.

The Euro yesterday reached a three-and-a-half-month high, and a half at the exchange rate of the NBR (4.4594 lei), and on the interbank market it has passed 4.46 lei, as the Mayoralty needs to exchange the 2.2 billion lei it raised on last week's bonds issue as soon as possible. The offer was intended to raise the amount needed to repay the debt that was issued in 2005, which is coming due next month.

At yesterday's exchange rate, the money raised through the bonds won't be enough to cover the amount of 500 million Euros.

When asked whether the Mayoralty has already begun exchanging the amount and what it would do if the amount in lei wasn't enough, general mayor Sorin Oprescu said: "I am more optimistic. We have an agreed upon procedure with the selected commercial banks. We will begin (ed. the exchange operation) when the Euro gets back to its normal exchange rate. [The euro] is rising because of the rumors. There is no way we are going to blow the market wide open. We have a month to perform this exchange".

Sorin Oprescu's statement comes as some analysts have attributed the rise of the Euro to the speculative operations in the market as well, amid the information that the Mayoralty is going to exchange 2.2 billion lei. Still, most journalists think that the evolution of the leu is in line with the international markets, being caused by the "pessimism" over Greece's financial situation, which has affected other currencies in the region, such as the zloty and the forint.

"Bond yields keep rising, and the trend is for borrowing costs to rise", analyst Călin Rechea told us. According to him, if no new quantitative easing programs are launched, the Mayoralty will have problems in refinancing the bonds for the near maturities (3 and 5 years), unless it succeeds in securing its own financing sources".

The bonds issued by the city of Bucharest had an average interest of 3.98%, the best that any Romanian mayoralty got, which allowed the city to save approximately four million lei a year, according to the recent statements of the general mayor.

The offer was structured in four tiers, of 3, 5, 7 and 10 years respectively, all of which were oversubscribed. On average, approximately 40 institutional investors bought municipal bonds, different ones for each tier.

The European Bank for Reconstruction and Development (EBRD) has invested 333 million lei (75 million Euros) in the bonds issue launched by the mayoralty of Bucharest.