Serbia will sell $2 billion in Eurobonds next year to finance its debt and wants to open its banking market to new investors from Russia and the Middle East to pull it out of a recession, Finance Minister Mladjan Dinkic said.
“We will start a road show next week in the United States and London,” home to a majority of the investors who snapped up Serbia’s September Eurobond issue, Dinkic said in an interview in Belgrade today, adding that some demand “this time may also come from Asian markets.”
The transaction is planned for next spring, after Serbia concludes a new loan deal with the International Monetary Fund. Advisers include Deutsche Bank AG, HSBC Holdings Plc (HSBA) and for the first time Russia’s VTB Bank OJSC (VTBR), and “they will be also looking into possible issues of a Samurai or Russian ruble debt,” Dinkic said.
The Cabinet of Prime Minister Ivica Dacic, which took office on July 27, has taken measures to avoid bankruptcy after the fiscal gap reached 7.1 percent of gross domestic product and public debt reached almost 55 percent of GDP in June with the economy mired in its second recession in three years.
The new Eurobond will come after the government tests the market with a $500 million issue of 5-year debt in November, when it hopes to further lower the cost of borrowing “and set a new benchmark,” Dinkic said. Serbia raised $1 billion in September with yields at 6.625 percent and Dinkic expects yields to be “way below 6 percent” next month.
The government is still counting on a $1 billion loan from Russia to help support its budget next year as the funds are cheaper than what Serbia pays for its Eurobonds.
“The aim of the government is to keep on reducing the cost of borrowing alongside fiscal consolidation and structural reforms,” he said. The reforms will be discussed with the IMF in November and the size of a new loan in January or February. “We would like a program best suited for a medium-term” because reforms are much easier with the IMF, he said.
Serbia will try to divest its stake in local banks and keep on talking with “carmakers from Germany” as well as China and India for investments, Dinkic said. The government will also try to sell Telekom Srbija AD again next year if it gets a right price “of around 2.5 billion euros ($3.2 billion) for the 100 percent stake,” he said. Revenues will help lower the public debt, he said.
Cars, Bank Sales
Investments are crucial to generate growth of at least 2 percent next year, with Serbia still keen to expand the car industry “despite the difficult situation in the global car market.” The central bank is more optimistic forecasting an export and investment-led expansion of 3 percent in 2013.
Asset sales will start in November this year, with the government calling a tender for the sale of its 65 percent stake in Privredna Banka Beograd AD (PRBN), one of several troubled banks that the state will no longer support, he said. Another bank for sale is Srpska Banka AD (SRBN) and “talks are under way with Gazprombank OJSC (GZPR*), VTB Bank and a bank from Abu Dhabi.”
Abu Dhabi investors are looking into Serbia’s agriculture, property, weapons industry and banking market and may even get a “greenfield banking license,” he said, adding that the implementation of some transactions may begin as early as the second quarter of 2013.
Serbia’s biggest bank, Komercijalna Banka AD (KMBN), where the government added 100 million euros this week to keep its stake in the bank, will not be for sale “because of unfavorable market conditions,” Dinkic said.
Instead, the bank co-owned by the European Bank for Reconstruction and Development, the IFC Capitalization (Equity) Fund, Sweden’s Swedfund International AB and Germany’s Deutsche Investitions- und Entwicklunggesellschaft mbH, known as DEG, may be listed “in a foreign stock exchange in the medium term with a free-float of 20 percent, with 10 percent each coming from the stake held by the government and the EBRD and IFC, so that the ownership balance remains unchanged,” he said.
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