The government bonds for the population, oversubscribed after two days

Reporter: What was the subscription rate in the first two days of the government bonds issue? What made you choose this summer period, when most people are on holiday?

Ştefan Nanu: Subscriptions have reached 108.8 million lei today (ed. note: yesterday).

It was a surprise even for us, after subscriptions reached 32.7 million lei on Monday, half of what was subscribed overall in last year's offer. On Monday, there were already 655 investors that participated in the offer, approximately half of last year's number.

We did not specifically target this summer period, we could have postponed it until autumn, but we succeeded in getting the documentation ready rather quickly and we decided not to wait anymore. For those who are on holiday, we have extended the subscription period to three weeks, so they can catch at least part of the issue.

Reporter: What are the explanations for the huge level of subscribers already seen?

Ştefan Nanu: There are two explanations. People have more money, disposable income has increased as a result of the fiscal relaxation as well as the wage increases in the economy. Moreover, the interest rates on deposits are very low, as banks have surplus liquidity. Furthermore, I think we had better marketing this year. This year, we have a TV ad, we are going to have an online ad on YouTube, on the Facebook page we have a person that is dedicated to answering the questions asked by citizens and clarifying things. The interaction is in real time.

I think what has also been attractive is the fact that we have lowered the face value from 1,000 lei, to 100 lei, and the fact that we are going to hold a sweepstake and award 100 prizes of 1,000 lei each, which are new features that increase the attractiveness and the accessibility of these instruments.

To us, the success isn't in the raised amount, but in the number of investors. To us, this instrument is more expensive than the ones on the interbank market, where, for a two-year maturity, we can borrow at 1.3,-1.4% per annum. This instrument is completely different than the ones we issue on the interbank market, it is a savings instrument that most countries offer their citizens, as an alternative for diversifying the instruments in which to invest their savings.

It is an instrument that should be held until maturity, if one wants to get all its benefits.

We have tried to explain this to people, so they can understand very well its characteristics and to make sure we don't draw subsequent criticisms. If they sell the instrument before maturity, due to the fluctuation of the price according the market conditions, the price may be worse. Moreover, the coupons (the annual interest rate) can only be earned by holding ownership of the instruments upon the moment of their payout.

Even though it is an instrument that is worth holding until maturity, we believe it is important to ensure the flexibility of the ability to sell it, because one might need money, at a given time. But the goal isn't speculative.

Reporter: Are gains from government bonds taxed?

Ştefan Nanu: No taxes are levied. The Fiscal Code stipulates that any gains obtained from the holding of government bonds are not taxable - regardless of whether the gain is derived from the coupon, from the sale of the bonds or the prize won in the lottery organized upon maturity. There are many countries that don't tax gains made from government bonds.

Reporter: How can a citizen subscribe in this issue?

Ştefan Nanu: There are two options. The subscription can be paid either through one of the banks that intermediate of the transaction, either through another intermediary, a brokerage firm authorized for that purpose. In the event of the first option, the subscription gets done in cash and they can say that they want to invest without opening a bank account. In that case, only the account for subscribing in this issue gets created. The second option is to open an account with the bank in question or to indicate another bank account, where the amount will be transferred from.

You fill out the subscription form, which asks for one's personal data as well as bank account information where the difference between the amount subscribed and the one allocated or the amounts paid and subscribed that do not get validated. Upon collecting the coupons and refunding the equivalent value of the government bonds upon maturity there is also the option of the money being transferred into a bank account as well as raising the cash.

Reporter: When is the first coupon paid?

Ştefan Nanu: In August, next year. It gets paid annually.

Reporter: Is Romania solvent until 2018?

Ştefan Nanu: The most telling answer is the fact that we still have downward yields for our government bonds on the interbank market, high demand from non-resident investors, for long, 10-12 year maturities, not for two years. On the last auction with a 10-year maturity, we had a demand of over 600 million lei, on a supply of 200 million. If non-resident global investors are willing to buy our instruments at that yield, when they have the entire global spectrum of instruments available, I think we have the best answer to whether we are solvent as a country or not.

Reporter: What is Romania's solvency trend over the last few years?

Ştefan Nanu: It is improving. A ratings firm measures the likelihood of a country defaulting on its debt. We currently have "investment grade" from all ratings firms (investment grade), with a stable or positive outlook. When it comes to many vulnerability ratios, we are doing very well even in comparison with other countries with a better rating than ours. Romania is an attractive country in terms of its growth potential, of the size of the market and of the limited vulnerability to the various risk factors that exist in the current context. Romania is a resource rich country and with an insufficiently exploited potential, unlike other countries in the region.

For instance, we still have an infrastructure "gap". If we were to make progress on the infrastructure side, we would probably have a different leverage when it comes to attracting investments. Also, on the tourism side, we have not explored the country's potential enough.

Eventually, Romania will tap its potential. Investors look at this aspect, what is the potential long-term return, when they are making a long-term investment.

We are very critical with ourselves, but foreign investors see us pragmatically from the outside, and they have a much better perception than the one that we have of ourselves.

Reporter: Do you have a maximum target that you can use to supplement the offer, in the event of oversubscription?

Ştefan Nanu: Normally, on the interbank market, when we decide to supplement the offer, we look at the cost-maturity ratio in the market context. Here, the cost is fixed, we are talking about an issue that does not involve competition, it is a subscription. Our goal is to provide a savings alternative, to build trust and when the individual investors subscribe it is not in our interest to disregard this trust. Thus, the oversubscription decision is one that takes into consideration first and foremost the demand factor and thus the oversubscription is very possible in the event of very high demand and so far we are pleasantly surprised by the demand.

Reporter: You said that a depositor has to be paid a 2.5% a year, to get the same return as the one on the government bonds. What interest do the banks have to intermediate this offer, when you are competing with them on deposits?

Ştefan Nanu: For them, it is a matter of recognition, of promotion, of marketing. They also get a management fee for their services. Intermediary banks are forced to post, at any time, a firm bid for these instruments. If you go to any of the four banks involved in this issue, on any trading day, they have to give you a price you can sell at. That is important. If you need money, you can exit the investment.

This is the reason why we have elected to sell the instruments through the mechanism of the Bucharest Stock Exchange, because the stock exchange allows the possibility of offering a transparent price and a trading platform. Had we sold the instruments through the Treasury, for instance, we wouldn't have been able to set a price transparently. We do not have a mechanism for that, because the Treasury is not a trading platform.

Reporter: What is the brokerage firms' interest in distributing this issue?

Ştefan Nanu: To provide to customers one more instrument, for diversification. There are brokers who have joined us and they have announced that they are not going to charge any subscription fees.

Reporter: Can the instruments be bought by institutional investors, after the issue?

Ştefan Nanu: Once you have sold to an institutional investor (ed. note: one of the intermediary banks for example) it can sell them further to another institutional investor. What is very important is that these instruments are assets that are eligible for the operations made by the National Bank of Romania. The bank can go with them on the market and get liquidity.

Reporter: When will the issue get listed on the BSE?

Ştefan Nanu: First of all the allocation gets done, then the settlement, and then the admission to trading. We do not have very high expectations from the trading on the stock exchange, because for that, someone would have to be willing to sell. It depends on the market. Investors will probably not seek to sell, but they will be watching the prices and they will be able to sell if they think that it is to their advantage. At any rate, I'll say it again, this is a savings instrument designed to be held until maturity in order to get all its advantages.