FINANCE: Cyprus issues EUR 1 bln bonds to pay off Russian loan

Nicosia is to issue a 15-year maturity bond of EUR 1 bln to pay off part of a EUR 2.5 bln loan obtained from Russia back in the torrid financial landscape of 2011.

Bloomberg reported that the Republic of Cyprus, with a credit rating of Ba2 (fixed) / BBB- (fixed) / BBB- (fixed) / BBBL (fixed) (Moody’s / S and P / Fitch / DBRS) has commissioned the banks of Citi, Goldman Sachs International, HSBC (EMTN) to issue a 15-year maturity Euro Medium Term Note (EMTN).

The yield of the bond has yet to be announced.

The latest debt issue of the Republic of Cyprus took place after the country’s creditworthiness was reinstated to investment grade by S and P in September. Cyprus had issued a 10-year bond of Euros 1.5 bln with a yield of 2.4% (a 2.37% coupon), the lowest ever offered by Cypriot bonds.

A government official told the Financial Mirror that if the bond is to mature in 15 years, then the interest rate may be higher than in last bond issue in September.

The source pointed out that this bond will be used to repay installments of the Russian loan and the Euro Medium Term Note (EMTN). Within 2019, Cyprus will have to pay two equal installments of Euros 312.5 mln each to repay Moscow.

Cyprus will have to pay back Russia the same amount each year until 2021.

The source added that the Republic of Cyprus aims to have stable and continuous access to international markets, with the country appealing to the international market once a year, over a period of 5-10 years with bonds maturity of 10 to 15 years.

The aim is to rollover the country’s debt during this period, while lowering it using the state’s fiscal surplus, said the source.

The Finance Ministry is very optimistic that the bond will attract investors who were present at roadshows in London, Paris, Munich, Milan and Amsterdam earlier this month.

Meanwhile the state has to pay off foreign debt of a total of EUR 1.19 bln in 2019, with the 0.7 bln expected to be covered by the fiscal surplus.

The Russian loan was obtained when the financial crisis first started to bite in 2011, with the then Demetris Christofias administration turning to Russia in an attempt to fend off the IMF-EU intervention which led to the bailout in 2013.

Cash-strapped Cyprus had secured a EUR 2.5 bln financial loan with a 4.5% return from Russia, a country with serious financial interests on the island.

Then government spokesman Stephanos Stephanou had stated the loan will enable Cyprus to cover its medium-term refinancing needs, avoiding liquidity strains on local commercial banks, as well as restore international investors’ confidence and ease the rising tendencies on Cypriot bond spreads in the European secondary markets.

Stephanou said the loan would shield the Cypriot model of mixed economy and open an additional line of finance for Cyprus.

Critics argue that delaying the bailout until Cyprus nearly went over the edge led to the haircut on deposits.

Source: The Financial Mirror