Albania borrows €450 mln in new 5-year Eurobond

Tirana Times
By Tirana Times November 13, 2015 10:46

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  • “We successfully completed the Eurobond operation and the fact that markets responded positively is the best answer to all claims that the economy is not on the right track and that public finances are not healthy,” says Prime Minister Rama

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TIRANA, Nov. 9 – Albania managed to secure €450 million in a new five-year Eurobond at a coupon rate of 5.75 percent, down from 7.5 percent in its inaugural €300 million Eurobond. The issue of the new Eurobond came on Nov. 5, one day after Albania’s five-year €300 mln matured, allowing Albania to replace its debt in much more favourable terms.

“The transaction represents a triumphant return to the international capital markets following the Republic’s inaugural EUR 300 million 7.50 percent bond issued in 2010, which matured on 4 November 2015 and was fully repaid in accordance with its terms,” said Germany’s Deutsche Bank and U.S.-based JP Morgan Chase, the lead managers of Albania’s Eurobond for the second time in a row.

“The size and price achieved reflects the international investor community’s positive sentiment and outlook on Albania and the confidence it has in the Republic’s reform agenda,” the lead managers said in a joint statement.

Speaking at a meeting with the business representatives this week, Prime Minister Edi Rama described the Eurobond issue as a success.

“We successfully completed the Eurobond operation and the fact that markets responded positively is the best answer to all claims that the economy is not on the right track and that public finances are not healthy. The contrary is true. It is exactly because we are undertaking the right reforms and because the economy is displaying clear signs of sustainable growth that we received a better than expected response,” said Rama.

Economy expert Ardian Civici, a former member of the central bank’s supervisory council, suggests the Albanian government should use the Eurobond money for investment in key areas rather than replace old debt.

“Under the current situation, I suggest that the most efficient fields where the Eurobond can be used are agriculture and agro-industry, employment, public investments with a direct impact on economic growth such as investments in tourism and energy and special policies targeting social assistance and poverty reduction,” Civici say.

Mateo Spaho, an economist and official of the opposition Democratic Party, described the new Eurobond as a disappointment because of its high interest rate.

“It’s a disappointment to Albanian taxpayers because the amount is higher compared to the Eurobond issued at an interest rate of 7.5 percent in 2010 when key rates were higher compared to close to zero currently,” said Spaho.

“Had the Albanian government been well-governed, it would have been able to borrow at 5 percent which means 3.7 million euros less in annual interest rates,” he added.

Back in 2010 when Albania issued its inaugural Eurobond, the key interest rate for the euro area was at 1 percent compared to a current historic low of 0.05 percent.

Three quarters of investors in Albania’s new Eurobond came from Europe, of whom 30 percent from the U.K. and 23 percent from offshore U.S., with 71 percent of them being fund managers and 26 percent bank and retail investors.

The issue of the new Eurobond was delayed affected by spillover effects from the crisis in neighbouring Greece which struggled to reach a new bailout deal over its debt crisis in mid-2015, causing a rise in bond yields.

Albania’s finance ministry said it used a €250 million loan it took out earlier this year from Deutsche Bank and €50 million raised in government securities in the domestic market to pay off €325 million, of which €300 million in principal and €25 mln in the last installment of interest rates for the inaugural Eurobond.

With public having reached a historic high of 73.7 percent of the GDP, the new Eurobond will enable Albania to achieve a longer debt maturity profile and refinance a portion of domestic debt in the international markets.

Albania is rated B1 by Moody’s and B by Standard & Poor’s with a stable outlook.

Tirana Times
By Tirana Times November 13, 2015 10:46