On course with € 100 mln bond is­sue

Financial Mirror (Cyprus) - - FRONT PAGE -

The govern­ment be­lieves its first is­sue for up to 10 mln eu­ros worth of 6-year re­tail bonds was a suc­cess and is con­tin­u­ing with the monthly is­sues, with the aim of rais­ing some 100 mln eu­ros ev­ery year, an amount that will be “sup­ple­men­tary” to its own fis­cal needs.

Fi­nance Min­istry of­fi­cials at the Pub­lic Debt Man­age­ment Of­fice (PDMO) told the Fi­nan­cial Mir­ror that plans are also un­der­way to of­fer the re­tail bonds to Cypriot in­di­vid­u­als liv­ing over­seas, sim­i­lar to war bonds is­sued by the U.S. and other “pa­tri­otic” in­vest­ment in­stru­ments con­sid­ered by Greece soon af­ter the cri­sis hit there six years ago.

PDMO of­fi­cials say that the aim is not to com­pete with the commercial banks for de­posits, but rather to tap into the money that left the sys­tem al­to­gether last year when the harsh con­trols forced savers to re­sort to ATMs to with­draw their 300 eu­ros a day al­lowance.

“Our aim is to of­fer an al­ter­na­tive in­vest­ment tool and to show that sta­bil­ity is grad­u­ally re­turn­ing to the money mar­ket,” one of­fi­cial ex­plained.

Al­though the Cyprus Stock Ex­change only re­ceived bids for only 7 mln eu­ros worth of re­tail bonds last month, the PDMO is con­fi­dent that this fig­ure will grad­u­ally in­crease af­ter the sum­mer lull when in­vestors are gen­er­ally hes­i­tant to place their money any­where.

The govern­ment has al­ready un­der­cut commercial bank de­posits by of­fer­ing a heav­ily re­duced 3% tax on in­ter­est, as op­posed to 30% on all commercial and Co­op­er­a­tive bank fixed and term de­posits. With an ini­tial in­ter­est of 2.75% for the first two years af­ter the is­sue, ris­ing to 5.75% in the fi­nal sixth year, the an­nual aver­age af­ter tax works out at an at­trac­tive 4%. In­ter­est is paid at the an­nual ma­tu­rity of the date of is­sue and a bond­holder may redeem at any time with­out any penalty, with only 30 days no­tice.

As with all re­tail bonds, these are only avail­able to in­di­vid­u­als who are per­ma­nent res­i­dents of Cyprus, re­gard­less of na­tion­al­ity. The ap­pli­ca­tion bids for the fol­low­ing month’s is­sue are ac­cepted dur­ing the first 20 days of each month and the dates for the July is­sue started on Mon­day, June 2 and end on Fri­day, June 20. The ceil­ing for the is­sue is EUR 10 mln a month. “There seems to be con­tin­ued in­ter­est and Mon­day’s ap­pli­ca­tions were very en­cour­ag­ing,” the PDMO of­fi­cial said, adding that just as with the pre­vi­ous re­tail bonds that were stopped in 2008, there is a spe­cific “clien­tele” for these in­vest­ments. He added that more and more people are inquiring about the bonds, both at the Min­istry of Fi­nance and the Cyprus Stock Ex­change, which is act­ing as an ac­cept­ing agent.

Mean­while, the is­sue of the re­tail bonds are not aimed at rais­ing funds at a time when the Cyprus govern­ment has not yet fully re­turned to the mar­kets.

“We have two debt is­sues of 85 mln eu­ros and 500 mln eu­ros com­ing up for re­pay­ment very soon, but we have own funds in or­der to fully pay this debt and then some,” the PDMO of­fi­cial said, adding that the re­tail bonds is­sue is re­garded merely as “sup­ple­men­tary” to other is­sues or fund­ing as Cyprus’ fun­da­men­tals are im­prov­ing bet­ter than ex­pected.

Ac­cord­ing to the quar­terly PDMO re­port for the pe­riod end­ing March 31, the weighted aver­age cost for Trea­sury Bills fell from 4.72% (on aver­age) dur­ing the pre­vi­ous quar­ter to 4,48 % on aver­age for Q1-2014. The stock of short term debt, in the form of Trea­sury Bills and Euro Commercial Pa­pers, in­creased from EUR 755 mln at the end of De­cem­ber 2013 to EUR 795 mln at the end of March 2014. The main re­demp­tions in this quar­ter re­lated to short term Trea­sury Bills and Euro Commercial Pa­pers which had been is­sued dur­ing the pre­vi­ous or the same quar­ter. On a gross ba­sis, in­clud­ing rollovers, a to­tal of EUR 1.21 bln was redeemed dur­ing the quar­ter. Ad­di­tion­ally do­mes­tic bonds ma­tured in Jan­uary and Fe­bru­ary for a to­tal of EUR 244 mln.

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