CYPRUS has finally returned to the international markets after a three-year exclusion. Nobody expected the government to regain access so soon after the signing of the memorandum and the bail-in of depositors – it was the quickest return to the markets of a country in an assistance programme.
The resolute implementation of the memorandum, the positive quarterly reviews by the troika, the better than forecasted indicators of public finances all contributed to Wednesday’s successful €750 million euro bond issue, which the government is entitled to be proud of. It may also have been a bit surprised by the success of the issue, which was significantly over-subscribed, interest rising to €2 billion when the book opened, according to Reuters.
This was the reason the government upped the size of its bond issue from the €500 million initially announced, to €750 million. Also significant was that the interest was below 5%, eventually settling at 4.75%. This may still be considered high compared to the yields of other states’ bonds and the low bank interest rates across the eurozone, but for a country that is in an assistance programme it was a positive step in the economy’s rehabilitation, an indication that the state was regaining some of the trustworthiness it had lost.
But the successful issue is more than a vote of confidence in the government’s management of public finances. It has practical benefits as it would provide Cypriot banks with additional liquidity. The money raised would be used to re-finance domestic debt – government bonds that are held by the local banks – thus making cash available locally. Perhaps more importantly, the successful issue could make it easier for the Cypriot banks to raise capital as well. The Bank of Cyprus might be announcing a share issue soon, a move that is fully supported by the Central Bank given the rising non-performing loans and the autumn stress tests.
President Anastasiades and finance minister Harris Georgiades had every reason to be pleased with the bond issue, because it was a significant step on the road to recovery, an indication that real progress was being made. Criticism about the relatively high interest rate and five-year benchmark is off the mark, when we consider that the country had no access to international markets since May 2011 and it is still in an assistance programme. But the successful issue showed that the Cyprus economy has regained the confidence of the markets which are toughest judge of economic performance and prospects.