articles | 21 May 2014

Cyprus considers bond-market return

Cyprus is considering selling bonds in 2014, as it prepares a gradual return to markets before an international bailout expires in 2016, according to Finance Minister Haris Georgiades.

Georgiades told reporters in Nicosia that Cyprus and the Troika of officials representing the International Monetary Fund, the European Central Bank and the European Commission agree on the need for country to conduct external borrowing.

Georgiades also said that the latest review of the country’s economic adjustment program by the Troika concluded “successfully.” The program is “on track,” staff from the troika said in a report today, published after Georgiades’s comments. Cyprus’s fiscal targets for the first quarter 2014 were met “with a considerable margin,” reflecting better-than-projected revenue performance and prudent budget execution, staff said.

A sale would probably be held in September and be intended to help the government reduce short-term liabilities, according to two Cypriot government officials with knowledge of the situation told Bloomberg yesterday. The officials spoke on condition of anonymity as no final decisions have been taken. It’s likely to involve bonds of a medium maturity, the people said.

While Cyprus sold €100 million ($137 million) of six-year bonds via a private placement last month, it hasn’t raised €1 billion or more at a sale since October 2010, as Europe’s sovereign debt crisis pushed up borrowing costs.

Investors have approached the Cypriot government since April’s sale, offering funding at lower interest rates, and the nation may hold one or two additional private placements in coming months, the people said.

The Cypriot government will shortly discuss with all political parties possible future bond sales similar to April’s placement, Georgiades said today.

Cyprus received a €10 billion bailout from the euro area and International Monetary Fund in March last year to avoid a collapse. Its financial performance means its buffer of spare funds from the rescue may increase to €1.5 billion from €1 billion, the people said. Georgiades told reporters that the next tranche from European partners will be €600 million.

A bond sale would see the nation follow Greece, Ireland and Portugal in returning to markets after receiving international aid. Yields on bonds from the currency bloc’s most-indebted nations have tumbled this year amid signs the debt crisis is abating and speculation European Central Bank policy makers will unveil new stimulus measures.

The yield on Cyprus’s 4.625% international bond due in February 2020 was at 5.27% at the London close recently, down from more than 8% at the end of 2013, and about 17% in June 2012, based on closing-price data. The nation has €7.1 billion of debt outstanding, according to data compiled by Bloomberg.

Cyprus’s economy will contract 4.2% in 2014 compared with an original forecast of 4.8%, Georgiades said.

Source: Bloomberg

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