Cyprus Plans to Follow Bailout Exit With Bond Sale This Year

  • Finance Minister Harris Georgiades comments in interview
  • Economy’s fundamentals justify investment grade, minister says

Cyprus plans to sell bonds again in 2016 in what would be the country’s first time tapping debt markets since exiting its bailout program, Finance Minister Harris Georgiades said.

Since regaining market access in 2014, Cyprus sold 2 billion euros ($2.2 billion) of bonds with maturities stretching from five to seven years, mostly Euro Medium Term Notes, a flexible financing instrument to issue senior bonds and private placements. Fears Cyprus may struggle to retain that access without a bailout safety net have been tempered as the yields on 10-year notes dropped 16 basis points to 3.75 percent after the country exited the three-year program at the end of March.

"Essentially we want to further smooth debt maturities looking out to a five-year horizon," Georgiades said in an interview in Nicosia. "We have smoothed out the debt maturities for 2016 and 2017 so we are under no pressure to move by a certain date, but shall definitely explore market conditions with a view of issuing an EMTN bond this year."

Cyprus left its 10 billion-euro bailout after using just 7.3 billion euros of the total. The island nation in the eastern Mediterranean has gone from a sick patient that came close to shattering the euro area in March 2013, when a haircut on deposits was imposed, to a poster-child of economic adjustment. It returned to economic growth last year following three years of recession.

The country is still rated below investment grade by all major rating companies, making its bonds ineligible for the European Central Bank’s asset purchases after it exited the bailout program. Without a waiver, which the ECB will only allow in conjunction with a program, its lenders also can’t pledge Cypriot government securities as collateral for access to the ECB’s regular financing lines.

"We want to achieve investment grade as soon as possible and I actually believe that the Cypriot economy already has the fundamentals to justify rating upgrades," Georgiades said. He cited three consecutive years of almost balanced budgets, primary budget surpluses, a downward trajectory in public debt, a strong growth rate, falling unemployment and stabilization of the banking sector.

Reform Agenda

"Fiscal space is becoming available that enables us to give back to the private economy in the form of tax cuts and breaks," he said.

Moody’s raised the country’s government bond rating to B1 from B3 on Nov. 13 citing faster-than-expected economic recovery and consistent outperformance of fiscal targets. Fitch lifted its rating Oct. 23 to B+ from B-. S&P Global Ratings raised Cyprus to BB- from B+ on Sept. 25.

The government’s priorities include a public-administration overhaul and finding a strategic investor to buy a share in, and take over management of, the Cyprus Telecommunications Authority, according to Georgiades. Efforts to privatize the state lottery, the Cyprus Stock Exchange, the country’s second-largest port at Larnaca and sell state-owned holiday real estate in the nation’s Troodos Mountains should be completed in 2017, he said.

"Cyprus’s reform agenda didn’t stop with the bailout exit and the reform momentum will definitely be maintained," Georgiades said.

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