Cyprus issued a €0.75 billion 5year bond on Wednesday, three years after its exclusion from the international markets.
The issue was oversubscribed by four times garnering offers of up to 2 billion, something which enabled Cyprus to issue €0.75 billion instead of the initial €0.5 billion. The coupon rate was 4.75% with a 4.85% yield.
The capital issued today will be allocated to domestic debt that matures shortly, which had a much higher funding cost, Cyprus Finance Minister Harris Georgiades said.
“Cyprus as of today is in the markets. The months-long effort was an absolute success,” Georgiades said in statements following the conclusion of the bond issue.
He made clear that this issue “in no way means that the difficult consolidation and reform programme has been terminated or completed.”
“On the contrary, due to this effort we regained the investor confidence one and a half year earlier that the initial target,” he stressed.
Georgiades also noted that today`s issue was not a one-off action.
“It was another step towards the consistent presence of Cyprus in the capital markets and its consistent capability to finance its needs. Therefore our aim is the next effort, when the conditions allow it, to have even better terms,” he said.
However he did not say when the Finance Ministry plans the bond issue. “The timing of each move is determined by market data and careful technocratic analysis”, he said.
The Finance Minister said that the funds will be allocated to domestic debt which will help restoring liquidity and the capital adequacy of the economy and especially the banking sector, as the banks are required to make provisions for Cypriot bonds, that have been included in the non-investment grade.
“Mainly for Bank of Cyprus which holds more than half of the current domestic debt,” he added.
Georgiades also noted that today`s bond issue will yield multiple benefits as it will render the Cyprus public debt more manageable and will also benefit the public finances as the island`s average borrowing cost is lowered by 3%, since it will replace domestic bonds that had much higher yield.
“However perhaps the most important is that (the issue) reconfirmed the confidence towards the Cyprus economy and its prospects,” he concluded.
Excluded from the international capital markets since May 2011, Cyprus received a €10 billion bailout to bailout its troubled banks and to cover its financing needs. On March 2013 the Cypriot authorities agreed with the Troika of the EU Commission, the ECB and the IMF on a financial adjustment programme, which featured a haircut on banking deposits, to recapitalise its largest lender, Bank of Cyprus, which absorbed part of the Cyprus Popular Bank which in turn has been wound down. The programme will cover financing needs up to the first quarter of 2016. The Finance Ministry`s initial target was to tap the markets on the last quarter of 2015 or early 2016.