Government Turmoil Delays Croat Eurobond Sale After Roadshow

  • Coalition parties at loggerheads over no-confidence vote
  • Sale delayed as finance minister visits London to promote bond

Croatia suspended plans to sell a Eurobond until the country resolves political turmoil triggered by a disagreement inside the governing coalition over a no-confidence vote against a ruling-party leader.

Finance Minister Zdravko Maric is currently visiting London to promote the international bond, but his ministry said on Wednesday the debt issue will be delayed. It didn’t say when the sale may take place.

“The reaction from investors was positive, but we decided to continue to monitor international financial markets with the intention of issuing a sole planned Eurobond this year after domestic political uncertainty is resolved,” the Finance Ministry in Zagreb said on its website.

Tensions between Croatia’s two ruling coalition parties deepened last week after the junior member, Bridge, said some of its lawmakers will back a no-confidence vote against Deputy Prime Minister Tomislav Karamarko. The move put pressure on Karamarko, the leader of the Croatian Democratic Union, to resign or face being ousted by the vote.

The yield on the Eurobond maturing in 2025 dropped 5 basis points to 3.82 percent as of 4:15 p.m. in Zagreb, after jumping 10 basis points to more than a two-month high on Tuesday.

While the Adriatic nation of 4.2 million people has resumed growth, infighting inside the four-month-old coalition is threatening reforms underpinning the recovery. The Eurobond delay came one day after the Balkan country reported that its first-quarter economic expansion accelerated to 2.7 percent, marking the sixth consecutive period of annual growth after a record six-year recession that wiped out 12 percent of the European Union member’s output.

Karamarko is facing a probe over his ties to Hungarian energy company Mol Nyrt. and allegations of conflict of interests. The opposition-led no-confidence ballot must take place by June 18. Karamarko has denied any wrongdoing and said he will not resign from the cabinet.

Technocrat Prime Minister Tihomir Oreskovic, who isn’t aligned with either ruling party, is planning to cut government spending this year, including by trimming the public administration and reducing payments in health care and pensions. His administration sees the budget deficit narrowing to 2.6 percent of economic output this year, from 3.2 percent in 2015, and public debt declining to 86 percent of gross domestic product, from 87 percent last year.

“The decision to withdraw the Eurobond was not surprising considering the circumstances,” Zrinka Zivkovic Matijevic, chief economist at Raiffeisen’s Croatian unit, said by phone. “Should this uncertain political situation continue, financing will be become more demanding.”

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