Re­tail bond sales plum­met af­ter rate cut

Financial Mirror (Cyprus) - - FRONT PAGE -

The monthly is­sue of 6-year re­tail bonds, the gov­ern­ment’s al­ter­na­tive fi­nanc­ing method af­ter the econ­omy crashed two years ago, plunged to their low­est level af­ter the gov­ern­ment an­nounced a dis­in­cen­tive of a lower in­ter­est rate start­ing from the Septem­ber se­ries.

The Public Debt Man­age­ment Of­fice of the Min­istry of Fi­nance said that the ninth se­ries at­tracted a cum­ber­some 52 bids for just EUR 3.8 mln, a far cry from the Au­gust is­sue of EUR 30 mln and EUR 31 mln the month be­fore. The bids ranged from EUR 1,500 to EUR 400,000 and all of­fers were from Cypriot na­tion­als, as op­posed to pre­vi­ous is­sues that at­tracted non-EU for­eign in­vestors, keen to pump in at least EUR 300,000 to se­cure a res­i­dence per­mit or about EUR 3 mln to qual­ify for cit­i­zen­ship.

The rea­son for the drop was the re­duc­tion in the av­er­age 6-year yield to 2.79%, down from the 4% av­er­age at the launch of the pro­gramme.

How­ever, the PDMO tried to give a spin to the an­nounce­ment by say­ing that the pro­gramme was suc­cess­ful and had raised EUR 154.4 mln so far this year, above the an­nual tar­get of EUR 120 mln based on the an­tic­i­pated monthly is­sue of EUR 10 mln.

Bids for the tenth se­ries for Oc­to­ber will open from Septem­ber 1 to 18 and will be is­sued on Oc­to­ber 2.

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, has to date raised EUR 215 mln for the gov­ern­ment that has only this year re­turned to the mar­kets fol­low­ing an aus­tere bailout pro­gramme im­posed the Troika of in­ter­na­tional lenders in 2013.

The in­ter­est rate for the 2015 se­ries had been ad­justed down­wards by 0.25 per­cent­age points and ranged from 2.50% for the first year to 5.50% in the fi­nal year. These are sub­ject to 3% tax on in­ter­est, far more at­trac­tive than the 30% tax im­posed on bank de­posit in­ter­est.

In May, the PDMO said it was low­er­ing the in­ter­est rate on fu­ture bonds start­ing from the Septem­ber se­ries, to 2.5% for the first 24 months, 2.75% for 24-48 months, 3.00% for 4860 months and 3.25% for 60-70 months.

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.

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