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Cyprus to Swap 1 Billion Euros of Bonds to Meet Aid Conditions

Cyprus offered to swap 1 billion euros ($1.3 billion) of its shorter-dated government bonds for others with longer maturities, seeking to meet the requirements of the 10 billion-euro rescue deal agreed on in March.

The nation will exchange “a number of existing local government bonds” due between 2013 and 2015 for five new bonds with equal coupon rates and five- to 10-year maturities, the Ministry of Finance said in a statement. Cyprus avoided a financial collapse in March by bowing to demands from creditors to shrink its banking system in exchange for aid. Greece pushed through the biggest sovereign restructuring in history in 2012 to maintain access to its rescue funds.

“This was one of the ways that was set out in the memorandum of understanding for them to cover their funding gap,” said Lefteris Farmakis, an analyst at Nomura International in London. “It shouldn’t be an issue. It was explicitly said that this was going to be a voluntary exchange, which means that they are targeting domestic holders and in all probability they have some recourse over them.”

The Nicosia-based Finance Ministry didn’t provide any more details about the bonds that will be exchanged.

Cyprus’s 6 percent bond maturing in January 2015 yielded 11.31 percent at 5 p.m. in London, down from 15.90 percent three months ago. The government’s 6.1 percent securities due in April 2020 yielded 13.16 percent.

‘Economic Recovery’

“We welcome today’s announcement by the Cypriot authorities to launch a voluntary debt exchange,” the European Commission and International Monetary Fund said in a statement. The swap will “ensure adequate funding at terms that support long-term public debt sustainability, an essential step towards Cyprus’s economic recovery,” they said.

Euro-area partners told the Cypriot government this week to remain “fully committed” to the terms of the rescue plan, after President Nicos Anastasiades sought leeway in dealing with the country’s financial crisis.

“It is important to avoid speculation about the commitment of the Cypriot government to deliver on its undertakings” in the bailout agreement “before the program has even had a chance to take off the ground,” Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of euro-area finance ministers, wrote in a letter to Anastasiades sent June 25.

Private investors wrote off about 100 billion euros of Greek bonds in the restructuring last year.

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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