News Column

UPDATE: Cyprus €750m 5-year bond issue a "success"

June 18, 2014



Cyprus formally returned to the markets Wednesday after three and a half years with a 5-year 750 mln euro bond attracting strong interest and a yield of 4.75%.



When the book opened earlier in the day it received 1.5 bln in interest and edged closer 2.0 bln by the end of the day, allowing the government to up the size of the bond issue from the 500 mln suggested on Tuesday. Finance Minister Haris Georgiades declared on Twitter: "It's done. Cyprus back to the markets. EUR 750 million, 4.75%, 5-year benchmark due June 2019."

The interest coupon was initially expected to be around 5.00-5.25%, Reuters said it opened with an official guidance of 4.90%, which is tighter than initial price thoughts released on Tuesday and having dropped to 4.85% settled at 4.75%.

"It just shows that the chase for yield is still very much on and 4.75-4.85% for 5 years in a low inflation environment is going to get a lot of attention. It's been a supportive factor of the euro for many months now," said Ryan Littlestone commenting on Forexlive.com.

"Bond yields have been falling, there has been a string of good news on the macroeconomic front and if you have any lingering worries that Russia might suddenly change its mind about the EUR 2.5 bln restructured bond, the fact that you can tap the markets provides some protection," said Fiona Mullen, Director of Sapienta Economics https://sapientaeconomics.com/ .

"So, as long as the coupon (interest rate) is not too high and it helps to smooth out maturities then it is a sensible move right now," added the Financial Mirror columnist and economist.

Deutsche Bank, Goldman Sachs, HSBC, UBS and VTB Capital were arranging the sale.

Cyprus is rated Caa3/B/B- by Moody's/S&P/Fitch (positive/positive/stable).

The issue follows a smaller 100 mln 6-year bond in April, where the government wanted to test the waters and achieved a steep 6.50% via private placement. Although it had a high yield, it nonetheless helped rebuilt confidence in Cyprus bonds, allowing it to exit the bailout programme sooner and resort to competitive markets to manage its public debt, including government financing.

"We are satisfied with the very positive outcome and the fact that the rate is clearly below 5% suggests that Cyprus is rightly reappearing as a stable economy with sound fundamentals," said ruling DISY/EPP party spokesman Prodhromos Prodhromou.

"This has fortunately refuted all the worries expressed over the past few days, which fully justifies the choices of the government and specifically the Minister of Finance (Haris Georgiades)," he said.

"With the pace of reforms continuing, we have every reason to believe that future reviews (by the Troika of international lenders) will continue to be positive," Prodhromou said.

The smaller European Party (Evroko) was the first to comment with spokesman Stavros Violaris saying this was "in the right direction, with the aim to raise funds in order to refinance national lending and restart the economy."

"While the economy was badly burnt in the bailout [a year ago], forcing the government to trim the holdings of depositors to recapitalise the banking sector, Cyprus has done much better than many feared," the Financial Times reported last week, adding that the island is the last of the eurozone crisis casualties to return to bond markets.

"Standard & Poor's upgraded the country's credit rating to B after the economy only shrank by 5.4% last year - less than expected by the IMF - and predicted that the contraction would slow to 4% this year," the FT had added.

The yield on Cyprus' 2020 bond declined to a four-year low of 4.75% a week ago and is currently below the 4.70% area, down from over 16.46% in June 2012.


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Source: Financial Mirror (Cyprus)


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