Serbia Sells $1.5 Billion of Debt for Budget Ahead of IMF

Serbia sold its second dollar bonds since November as the government takes advantage of lower borrowing costs to raise cash for the budget before returning to aid talks with the International Monetary Fund.

The Balkan nation sold $1.5 billion of seven-year bonds today with a yield of 5.15 percent. Deutsche Bank AG, JPMorgan Chase & Co. and Barclays Plc arranged the sale. Serbia, which sold $750 million of notes in Nov. 14 to yield 5.45 percent, plans to raise $2 billion on international markets in 2013 issuing seven-year and 10-year bonds, according to the budget.

Serbia will raise money on foreign debt markets with or without an IMF deal, Finance Minister Mladjan Dinkic said in an interview Jan. 15. Bond buying by central banks in the U.S. and the euro region has stoked appetite for riskier emerging-market assets, allowing junk-rated issuers such as Hungary and Serbia, which are both in recession, to raise funds. Average Serbian sovereign bond yields have fallen 205 basis points from a June high, according to JPMorgan Chase & Co.’s EMBIG indexes.

“This latest deal seems to offer a bit of new issuance premium, but not the extreme mispricing that we have seen with some of the recent Serbia deals,” Timothy Ash, chief emerging-markets economist at Standard Bank Plc in London, said in a note to clients today before the sale.

Premier Ivica Dacic’s government, in office since July, tapped the market just hours after neighbor Romania raised $1.5 billion issuing 10-year notes to yield 4.5 percent. Earlier this week, Hungary borrowed $3.25 billion in its first sale of foreign bonds in 21 months.

High Demand

Demand for Serbia’s bonds in today’s sale was three times what was on offer and 148 institutional investors were seeking to buy the notes, the Finance Ministry said in an e-mailed statement.

Yields on Serbia’s outstanding 2017 dollar-denominated bonds rose 6 basis points, or 0.06 percentage point, to 4.45 percent today, while yields on dollar notes due in 2021 increased 1 basis point to 5.29 percent, prices compiled by Bloomberg show.

Serbia, which raised $1.75 billion in two Eurobond sales last year, expects an IMF mission will come to the country in May for talks on a new precautionary loan, Dinkic said Feb. 7. The nation, rated three levels below investment grade by Standard & Poor’s, will need 493.6 billion dinars ($5.9 billion) this year to service its debt, 25 percent more than in 2012, according to the 2013 budget.

Dacic’s cabinet needs funds to shore up the budget and keep the former Yugoslav republic’s economy growing after the euro region’s financial crisis hurt demand for its products and cut foreign investment. Serbia had its most recent $1.3 billion IMF loan suspended in February last year after the previous government failed to meet fiscal targets.

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