Still mired in recession, and with its credit ratings deep in junk territory following a debt exchange last year that ratings agencies classed as a default, the island hired five banks this week to oversee a planned bond sale.
That would mark the fastest comeback to markets of any of the euro zone countries that were forced to seek international aid as a debt crisis engulfed the currency bloc. It would also take place while capital controls are still in force, although
With interest rates in developed countries at historic lows and investors grabbing anything that offers even a tiny pick-up in yield, the sale is expected to be a success.
“Now is the best time for
The returns on offer are hard to match.
Yields on top-rated bonds are even lower, which pushes investors to buy riskier assets to maximise returns.
In April, twice bailed-out
Last week, the
“The yield … is attractive. That was the case before the ECB last week and the tone has improved since then,” said
Such borrowing costs look appealing for
Politically, the market return would be an endorsement of the island’s resolve in sticking to the tough terms of its rescue package, while
Its economy is expected to contract by 4.2 percent this year, less than the 4.8 percent initially expected, and some, such as local consultancy Sapienta, see the decline in output at closer to 3 percent.
The island has also gradually reduced capital controls in the past year, although investors with money in some Cypriot banks still cannot move cash abroad without prior approval.
The restrictions do not affect investments in government bonds directly, but the fact that money cannot move freely in and out of the country is usually a big deterrent for any foreign investor.
Not this time, though.
“At the moment I don’t think investors care a lot about capital controls … market prices suggest they’re likely to be able to issue,” said
There are no concrete details about what kind of bonds may be on offer, with the roadshow yet to start.
But analysts reckon a five- or even a 10-year might be feasible, while the buyers are likely to be the same ones who bid for the Greek bonds: a large part will probably go to British- and US-based hedge funds.
“What Cyprus has over
Greece’s new bond now yields around one percentage point less than when it was issued – something which may encourage investors to buy. But beyond any profits it may bring, a Cypriot market comeback will have a deeper meaning.
“For the country itself and for the people that have gone through the crisis it will show that if you keep persevering and do the right things you will be able to access the market again,” said
“It would also be seen by
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