“Vote of confidence in Cypriot economy”
CYPRUS’ first foreign bond issue since 2004 was a huge and unprecedented success “in a really uncertain economic climate”, and is a “vote of confidence in the Cypriot economy and our economic policy”, Finance Minister Charilaos Stavrakis announced yesterday.
The four-year government bond issue was massively oversubscribed, with €5.4 billion bid against the €1 billion sought. Given the exceptional interest expressed, the government decided to draw on €1.5 billion, consisting of €1.25 billion from foreign investors and €250 from Cypriot investors.
Expressions of interest were made by 103 investors from around 20 countries, but mainly by central banks, big commercial banks and insurance companies, and institutional investors from the US, UK, Germany and France.
The original intention was for the government team to make 10 presentations in four European financial centres over three days last week. However, after the presentations in London and Paris attracted so much interest, with attendance by investors from Germany, Italy and elsewhere, the Minister and his team felt “much more comfortable” about the likely response and so returned to Cyprus.
Stavrakis said: “Despite being harder to achieve, we chose to target foreign investors in order to bring new money and fresh liquidity into the economy. This fresh liquidity will strengthen the real economy and, we hope, will help ease the interest rates situation in Cyprus.”
He added that factors which investors found convincing were Cyprus’ positive economic indicators, low inflation, healthy public finances, and a solid banking sector that has not needed to be bailed out.
The bonds, which will mature in June 2013, will yield a “very competitive” 3.75 per cent interest, which is “lower than the 5.0 per cent average yield on Cyprus’s existing medium term bonds, and lower than the 5.0 per cent cost of funds we allowed for in the 2009 budget”, Stavrakis said.
The proceeds of the bond issue will cover normal refinancing of the public debt and financing of the public deficit in 2009-10, as well as the government’s commitment to contribute €200 million per year to the Social Insurance Fund. The double benefit is that Cyprus is “refinancing existing debt at a much lower interest rate, and repaying locally-borrowed money with foreign funds, thereby increasing local liquidity”, the Minister added.
“Our total financing needs are around €1.6 or €1.7 million this year, which is made up mostly of maturing public debt, so with €1.5 million of new funds we can be sure of covering the refinancing without having to worry about the cost of this year’s social benefits and infrastructure programmes”, Stavrakis said. “We saw no need to borrow more under this bond issue, as this would unnecessarily aggravate the public debt indicator at the end of 2009”, he added.
The proceeds from the bond issue are expected to reach the Cypriot banking system on 3 June.
