Retail bonds oversubscribed, again
Last month, the Public Debt Management Office Ministry of Finance sold 6-year government bonds worth EUR 31 mln in its monthly offer, the second highest in the programme that started last year, suggesting that investors continued to have an appetite for this investment, unaffected by the government’s move to lower interest rates on the retail bonds for individual investors from the next issue.
The PDMO said that the August series raised EUR 30,055,900 from 187 applicants, of whom just four were foreigners who pumped in half the amount, entitling them to apply for permanent residency or even investor-based citizenship. The size of bids ranged from EUR 3,000 to 5 mln.
The retail bond offer, that is restricted to individuals and supposed to have a monthly cap of EUR 10 mln, with the aim of raising EUR 100-120 mln a year, seems to be this administration’s hen that lays the golden egg, with upcoming offers also expected to be picked up.
Non-EU applicants must invest about EUR 3 mln in bonds or long-term deposits, or other tangible assets such as property or equity in a company, and hold on to the investment for several years in order to be eligible for citizenship.
The PDMO had said that for the July bonds, the seventh series this year, it received 123 offers for the total of EUR 31,103,800, of which 22.5 mln were from just eight foreign investors. The size of bids ranged from EUR 1,000 to 5 mln.
The retail bonds were conceived as an alternative source of mid-term funds having been shut out of markets since 2011 when the island’s banks invested in toxic Greek government bonds that led to their downfall and a EUR 10 bln bailout programme from the Troika of international investors.
The PDMO has said that it is not limited to receiving bids for only EUR 10 mln a month and that it can accept to sell all the retail bonds, if it so wishes.
The biggest amount of retail bonds sold was in December 2014 when it sold EUR 37 mln, up from EUR 27 mln in November, with most of the interest continuing to come from foreign investors.
The ninth series for September will accept bids for EUR 10 mln from August 3 to 20.
In its first quarter 2015 report, the PDMO had said that the issues of 6-year bonds continued unhindered and raised EUR 57 mln in the first three issues of the year.
The interest rate for the 2015 series has been adjusted downwards by 0.25 percentage points and ranges from 2.50% for the first year to 5.50% in the final year. These are subject to 3% tax on interest.
In May, the PDMO said it was lowering the interest rate on future bonds starting from the September series, offered this month. Thus, the rate will be lowered to 2.5% for the first 24 months, 2.75% for 24-48 months, 3.00% for 48-60 months and 3.25% for 60-70 months.
This will generate an average 6-year yield of 2.79%, down from the 4% average at the launch of the programme. As a consolation prize, the PDMO said that the previous rates would be maintained on the bonds already issued, until they expire.
At the beginning of the year, the PDMO lowered rates by 0.5% starting from an initial 2.5% for up to 24 months and gradually increasing to 5.5% for a 60-72 months holding, for an average annual yield of 3.875%.
The annual coupon rate when the series was first launched in May 2014 started from 2.75% and averaged at an attractive 4% over a six-year period, with a minimal 3% income tax on the interest, far better than the 30% imposed on all interest-yielding products.
The Ministry of Finance said that the eighth series of its retail bonds were three times oversubscribed, with the August series raising EUR 30 mln. However, interest may be subdued for the upcoming issues as a lower interest rate kicks in.