News Column

€750m bond a step towards 'systematic' return to markets

June 19, 2014



By Staff Reporter

YESTERDAY'S €750m eurobond issue was a decisive step towards a "systematic" return to international markets after a three-year exclusion, finance minister Harris Georgiades said yesterday.

"This issue means that we will be able to refinance a significant part of the present domestic debt and achieving a lower debt re-servicing cost," he told reporters.

"It's done. Cyprus (is) back in the markets. EUR 750 million, 4.75%, 5-year benchmark due June 2019," he remarked on Twitter earlier.

Confident of the success of the road show arranged by global behemoths Deutsche Bank, Goldman Sachs, HSBC, UBS and VTB Capital, the government upped the size of its bond issue from the €500m initially announced on Tuesday.

When the book opened yesterday it received €1.5bn in interest and rose to €2.0bn, according to Reuters and other market analysts.

The interest rate was 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% eventually settled at 4.75%.

"Through a concerted effort, Cyprus is in a position once again to fund its needs by tapping the international markets," President Nicos Anastasiades declared at the ICPAC accountants' annual conference last night.

"Just a few hours ago, the issue of the 5-year euro bonds was concluded with great success. The total bids reached €2bn, which is a significant oversubscription and a strong vote of confidence in the prospects of the Cyprus economy," he said, adding that the venture had surpassed "even the most optimistic expectations."

But the president suggested a measure of reservation as the bond issue's success "should not mark a relaxation in our efforts towards reforms and revival of the economy. On the contrary, we are determined to continue with the corrective measures to reinstate our growth prospects."

In his offhand remarks after his speech, Anastasiades said that "the first thing that any prudent homemaker would do would be to restore his household's credibility and what we have achieved today is to restore credibility of the Republic of Cyprus which will allow and encourage investments. The economy must first stabilise itself if anyone is ever to trust us and invest."

"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 €2.5bn restructured bond, the fact that you can tap the markets provides some protection," said Fiona Mullen, Director of Sapienta Economics.

"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," she added.

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

The issue follows a smaller €100m 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 rebuild 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 party spokesman Prodromos Prodromou.

"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," 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," Prodromou said.

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

The socialist EDEK party said in a statement that as long as the yield was below 5%, this was a positive development, but said that the funds raised should be used to boost liquidity in the market and should be injected into the real economy.

But the Greens party said that a sense of trust in the markets should not be seen as a recovery of the economy.

"This is all a communications trick and cannot be described as a joyous event and cause for celebration. In reality, this is not counterbalanced with development and growth which will earn real incomes and allow the state to repay its debts."

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: Cyprus Mail


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