Bulgaria has set pricing on its euro-denominated, benchmark-size, five-year bond in the area of 350 basis points over midswaps, one of the banks running the deal said Monday.

BNP Paribas, HSBC, and Raiffeisen Bank International (RAIFY) are the lead managers on the issue, which is expected to price later Monday.

Bulgaria is rated Baa2 by Moody's Investor Services and BBB by Standard and Poor's Corp. Bulgaria was last in the euro-denominated bond market in 2002.

Bulgaria started on June 25 a series of investor meetings across Europe ahead of the eurobond issue that the country plans to float this year.

On June 8, Bulgaria's Parliament ratified contracts with BNP Paribas, HSBC and Raiffeisenbank as mediators for the eurobond issue. The three banks will organize the meetings with investors.

Bulgaria plans to tap international markets to raise funds to repay the first tranche of about EUR 835 M (USD 1.07 B) in 11-year eurobonds maturing on January 15, 2013.

The bonds offered on international markets will be worth up to EUR 950 M.

The interest rate will range between BGN 8-12 M per month, Finance Minister Simeon Djankov explained.

"That's why we decided to start in the spring. The second tranche matures at the beginning of 2015, so the next government will be in the same situation that we are now," he added.

BNP Paribas, HSBC and Raiffeisen have been appointed to advise the Bulgarian state as well as manage the sale of the bond.

Bulgaria is likely to issue its five-year sovereign eurobond on better terms than the country's foray into international capital markets back in 2002, according to analysts.

The Balkan country expects the interest rate - or yield - that it would have to pay on this new five-year bonds to be 5.5%, 2% lower than the 11-year eurobonds issue maturing on January 15, 2013.

According to unconfirmed information Finance Minister Simeon Djankov has decided to go for a five-year maturity partly because of the low indicative prices that the three financial institutions offered - less than a 4% yield - on bonds with that maturity.

The finance minister is also believed to be counting on the banks' assurance that managers will help Bulgaria tap international markets at an affordable cost if the eurobond placement does not draw strong demand.

Bulgaria's Finance Minister Simeon Djankov defended in April the draft law that allows the government to purchase unrated Bulgaria bonds after it came under fire by the European Central Bank (ECB).

In an opinion requested by the Bulgarian government and dated April 13, ECB President Mario Draghi argued that such a law would discriminate against foreign debt securities, which do require a credit rating.

Finance Minister Simeon Djankov responded in a letter, stressing that any Bulgarian bond issues purchased would have interest rates based on market benchmarks.

Analysts have warned that Bulgaria's government may be forced to struggle with volatile markets if it misses out on the current benign conditions.

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