articles | 20 August 2019

Cyprus to pay off Russian loan before deadline

Cyprus is to make an early repayment in full of a €2.5b Russian loan secured during the financial crisis which has a remaining balance of €1.5b that expires in 2021.

Nicosia will pay off the loan it obtained in 2011 from Moscow to avert financial meltdown as it became locked out of markets.

The loan from Russia was restructured in 2013 after the country secured a bail-out from international lenders and depositors at its two biggest lenders took a bail-in on their deposits.

The loan’s repayment period was extended to 2021 and the interest rate was cut to 2.5% from 4.5%. The outstanding amount of the loan is €1.57 billion.

After successful bond issues earlier this year the government has decided to pay off the loan in September, when the next instalment is scheduled.

The move is interpreted as an effort to bring down public debt to €21.2 billion, corresponding to 100% of the country’s GDP.

The goal set for the end of the year was to bring down Cyprus’ debt down to 96% of GDP.

According to the loan agreement signed with the Russian authorities, Cyprus has the right to pay off the loan earlier than designed without facing any penalties.

The government is expected to use funds from state deposits with Central Bank of Cyprus which amounted to €2.9 billion at the end of June.

The state deposits with the CBC are mainly cash drawn in from the latest bond issues, and carry a European Central Bank interest rate, as essentially these deposits are with the ECB.

According to the Public Debt Management Bureau, net financing needs for 2019 amount to €2.3 billion. In addition to the €2.3 billion that came from the three EMTN issues at the beginning of the year, smaller amounts were raised by the state from loans, domestic bonds and retail bonds.

Part of the surpluses estimated at €700 million will also be used for repayments.

In 2020, excluding the aforementioned Russian loan, the state will be in need of €1.4 billion to cover mainly domestic bonds, while 2021 debt to be paid off amounts to €1 billion.

By 2022, on the other hand, debt maturities are projected to exceed €2 billion and in 2023 they will reach €1.5 billion.

Source: Financial Mirror

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