Serbia plans to sell dollar-denominated bonds for the second time this year, joining peers in emerging Europe by tapping international investors as it seeks to finance a budget deficit and settle debts.
The government hired Citigroup Inc. and Deutsche Bank AG to hold investor meetings from Nov. 6 in the U.S. and the U.K., a person familiar with the plan said, asking not to be identified because the details are private. A dollar-bond sale may follow, the person said. Serbia raised $1.5 billion from seven-year bonds in February that yielded 5.15 percent, data compiled by Bloomberg show.
Issuers including Turkey and Croatia are pursuing debt sales as borrowing costs decline on speculation the Federal Reserve may delay tapering monetary stimulus. Serbia, which is seeking loans from the International Monetary Fund and the United Arab Emirates, is “virtually on the verge of bankruptcy,” Deputy Prime Minister Aleksandar Vucic said in an interview with Prva TV on Oct. 7.
For Serbia it will be “a tougher sell than for other central eastern European sovereigns, with the exception of Ukraine and Slovenia, but the timing is quite good and the window for issuing will close soon,” Richard Segal, the head of international credit strategy at Jefferies Group Inc. in London, said by e-mail.
The country has 44.5 billion dinars ($525.7 million) of debt coming due to domestic bondholders this year, data from the nation’s debt agency show.
Turkey is selling 1.25 billion euros ($1.68 billion) of eight-year bonds today, the country’s first offering of euro-denominated debt in more than three years, according to a person familiar with the transaction, who asked not to be identified because the details are private. Croatia also picked banks for a bond sale, another person said.
The yield on Serbia’s 2020 bonds, which fell in the last two months, rose 18 basis points, or 0.18 percentage point, to 6.3 percent as of 5:15 p.m. in Belgrade, the highest since Oct. 7, data compiled by Bloomberg show. Serbia is rated BB- at Standard & Poor’s, three steps below investment grade.
The premium investors demand to hold Serbian debt over U.S. Treasuries fell five basis points today to 423, according to JPMorgan Chase & Co. indexes. That compares with 340 for its former Yugoslav peer Croatia and 273 for Turkey.
Serbia will rely on a $750 million bond sale and a 3 billion-euro ($4 billion) loan from the U.A.E. to fund its budget and settle debt, according to its 2014 draft budget. The government also renewed talks with the Washington-based IMF for a stand-by loan deal.
Selling debt before securing these financing lines may send “a worrying signal,” Abbas Ameli-Renani, an emerging-market economist at Royal Bank of Scotland in London, said by e-mail. Serbia “will have to pay a hefty premium for issuance if it comes without a U.A.E. loan secured or without any serious signals of rapprochement with the IMF, he said.