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Cyprus

Finance ministry defends bond issue

By Angelos Anastasiou

FINANCE Minister Harris Georgiades defended the government’s decision to issue a six-year bond for €100 million at 6.5 per cent on Monday, saying it offered the dual aim of preparing Cyprus’ return to the international bond markets and transforming short- to medium-term debt.

The bond issue, sold last week to a British house via private placement, has been hotly contested by local political parties. Some argued it was proof of the inadequacy of the memorandum of understanding (MoU) that Cyprus signed with its international lenders in exchange for a €10 billion loan, while others considered it a scandal that Cyprus sought to borrow money at 6.5 per cent when its long-term bond borrowing rate hovered around 5 per cent.

“I would like to repeat that the successful issue of the European bond – the first to a foreign investor since 2010 – constitutes a strategic action relating to the timely preparation of Cyprus’ return to the markets, as well as the need for better management and restructuring of public debt,” Georgiades said.

“A significant portion of existing debt has a high cost and short duration, as in the case of the bond issued in favour of Laiki Bank in 2012. This bond [originally issued at €1.8 billion] is currently at €2 billion, is due for repayment in 2017 and is not included in the Troika’s financing schedule.”

Georgiades also explained how medium-term borrowing of relatively small amounts can help restructure loans expiring in the short-term.

“Overall, maturing debt during the first 18 months after the programme’s completion exceeds €3 billion. Consequently, by the timely securing of complementary loans the Republic of Cyprus can manage, and gradually pay off, existing debt.”

But the finance minister appeared somewhat irked by the insinuations made against his decision to issue debt at a cost perceived higher than normal, at a time when the country’s financing needs were supposedly covered in full by the troika of international lenders, and could not resist taking a swipe at his detractors.

“Naturally, the loan agreement remains the main source of finance over the next two years,” the statement said. “But Cyprus is obliged, in parallel to the effective implementation of its adjustment programme, to prepare its return to self-sufficient borrowing.”

“I hope that everyone, and especially those responsible for Cyprus’ exclusion from the borrowing markets, will understand and support this national effort.”


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