Cyprus read­ies for € 500 mln bond is­sue

Financial Mirror (Cyprus) - - FRONT PAGE -

Cyprus aims to for­mally re­turn to the mar­kets with a 500 mln euro bond is­sue “very soon”, pos­si­bly even at the end of June, ap­point­ing Deutsche Bank, Gold­man Sachs, HSBC, UBS and Rus­sia’s VTB Cap­i­tal to ar­range road shows.

This fol­lows state­ments made over the weekend by Fi­nance Min­is­ter Har­ris Ge­or­giades that the govern­ment plans to re­turn to in­ter­na­tional mar­kets a year sooner than an­tic­i­pated, even though the Cyprus bailout aid pro­gramme cov­ers the is­land’s fi­nan­cial needs un­til the first quar­ter of 2016.

The re­ac­tion from po­lit­i­cal par­ties was mostly en­cour­ag­ing, with some op­po­si­tion voices ex­press­ing con­cern that when the govern­ment went out with a 100 mln pri­vate place­ment nearly two mar­kets ago “to test the mar­kets” it achieved a steep 6.5% yield.

“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.

“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.

“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, 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 added.

The yield on Cyprus’ 2020 bond de­clined to a four-year low of 4.75% on Tues­day, down from over 16.46% in June 2012.

“This is a very pos­i­tive de­vel­op­ment for us. It’s a clear sign of trust to­wards our econ­omy. Our liq­uid­ity will in­crease and we will be able to pull our­selves up,” Ge­or­giades said on Satur­day, adding that the Troika of in­ter­na­tional lenders has al­ready given the green light to the is­sue.

Com­bined with the pos­i­tive troika eval­u­a­tion of the ad­just­ment pro­gramme, the Fi­nance Min­istry, ac­cord­ing to Ge­or­giades, de­cided to risk the is­land’s re-en­try to in­ter­na­tional mar­kets.

“This is a re­sult of im­ple­ment­ing a re­spon­si­ble and cred­i­ble pol­icy and is a clear in­di­ca­tion that we are on the right track,” said rul­ing DISY spokesman Pro­dro­mos Pro­dro­mou.

“But our prob­lems are far from dis­ap­pear­ing. We must con­tinue on this course to wipe out en­tirely the dark cloud from the pre­vi­ous mis­man­age­ment,” he said.

Re­spond­ing to crit­i­cism from the op­po­si­tion AKEL, Pro­dro­mou added that “they seem to for­get that from 2008 to 2013 our pub­lic debt shot up from 8.4 bln eu­ros to 15.3 bln and that when they left (the pre­vi­ous ad­min­is­tra­tion) we in­her­ited a fur­ther 10 bln eu­ros from the bailout me­moran­dum.”

Ge­or­giades had said that the re­turn to the bond mar­kets fol­lows re­cent pos­i­tive de­vel­op­ments, such as the lift­ing of all lo­cal cur­rency con­trols, a profit re­port from Bank of Cyprus, the ar­rival of EBRD (with an an­tic­i­pated in­vest­ment of 600-700 mln by 2020) and the last pos­i­tive re­view of the Troika of in­ter­na­tional lenders.

For­mer ju­nior coali­tion part­ner DIKO also praised the govern­ment’s ac­tion, with party leader Ni­cholas Pa­padopou­los say­ing that “one of the fun­da­men­tal pa­ram­e­ters to restart the econ­omy is for there to be liq­uid­ity in the mar­ket.”

“This has been achieved by the re­pay­ment of debt by lo­cal bor­row­ing,” he said, adding that the fact that there is for­eign in­vestor in­ter­est is pos­i­tive for Cyprus.

House Pres­i­dent and so­cial­ist EDEK leader Yian­nakis Omirou said that there must be full trans­parency in the is­sue process, as with the re­cent ECB de­ci­sion there has been a drop in in­vestor in­ter­est for bonds from the Eu­ro­zone pe­riph­ery with the yield for the Cyprus 10-year bonds now firmly be­low 5%.

“So, there should be re­peat of the past mis­take of is­su­ing the 100 mln euro bond at the 6.5% coupon rate.”

Alexan­dros Michaelides of the Cit­i­zens’ Al­liance said that the re­turn to the mar­kets bodes well, but warned of the pre­vi­ous is­sue that was achieved with a “loan shark” in­ter­est of 6.5%.

“Our re­turn to the mar­kets should be when the con­di­tion are right and is we can of­fer it at a lower rate,” he said.

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