articles | 21 October 2015

Cyprus prepares its return to the markets

A countdown for a return to the markets to raise millions has begun with presentations to investors by Cyprus international consultants in London.

The Cyprus government has instructed Barclays, Goldman Sachs International, HSBC and Nomura to organise a series of meetings with investors in Europe.

Cyprus Treasury has already posted on its website the 38-page document that the government is presenting to the investment community abroad on both public and corporate financial activity.

Friday, October 23 seems to be the milestone for the final decision on the timing of the issuing of the Cyprus bond, when Fitch is expected to publish its report on Cyprus. Moody’s will be publishing its own evaluation on November 13.

The Finance Ministry already holds in hand the Standard and Poor’s recent upgrade from B+ to BB-, which brings Cyprus only 3 credit ratings away from S&P’s investment grade.

Fitch and Moody’s assess Cyprus creditworthiness 6 ratings below investment grade, giving Cyprus B- and B3 respectively.

The Finance Ministry appears indecisive with regards to both the amount and the duration of the bond to be issued and remains hopeful for a new upgrade that will give a new push to efforts of cheap borrowing from international markets.

On Tuesday, the 2020 maturity bond closed at 2.7% in the secondary market, which is the lowest it has ever been. The 2022 bond gave an average yield of 3.4%.

The new bond will have a 7 or 10-year maturity period, but this is a decision that will depend on market data.

Finance Ministry is not even confirming whether the total bond issue will be in the range of € 1.5 billion. Ministry technocrats lean toward an issue of less than €1.5 billion.

Cyprus’ main selling points in its international presentations are:

• its prudent fiscal policy
• the positive restructuring of the balance of payments
• the declining trend in public debt and the change in its maturity structure
• the adaptation of structural measures for the economy

With regards to banking, the presentations stress the successful implementation of the capital increase, as a result of which Cyprus maintains a strong banking system with a strong capital base, with deposits also beginning to stabilise.

In terms of the non-performing loans, provisions and collaterals significantly mitigate the impact on bank balance sheets, the ministry’s document claims.

The document also makes special reference to the restricting measures for the banking system include the insolvency context and additional legal regulations that will facilitate sales and loan securitisations.

Also emphasised is the decrease of funding the Bank of Cyprus is receiving from the European Central Bank.

The London presentation also stressed Cyprus’ intention to maintain a strong presence in the international market after 2016 and remain the main source of medium-term financing.

As financing needs are largely covered by ESM-IMF, the issuing of bonds aims at a change of objectives, the main one of which is none other than reducing the risk of refinancing in the coming years.

Source: InCyprus

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