Albania starts preparations for third Eurobond issue

Tirana Times
By Tirana Times June 11, 2018 15:22

Albania starts preparations for third Eurobond issue

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  • The selection of the legal consultant precedes the more important process of picking the lead manager of Albania’s upcoming Eurobond which the Albanian government has hinted could be up to €500 million

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TIRANA, June 11 – Albania has initiated procedures for its third Eurobond issue as it intends to tap international markets again to refinance existing external debt and reduce pressure on internal financial markets where lending remains sluggish amid declining but still high non-performing loans and poor business and household demand.

The Albanian government says it is seeking a legal consultant that will assist the finance ministry in the borrowing process which is expected to conclude by late 2019, one year before Albania’s current €450 million Eurobond matures.

In a pre-qualification tender, the finance ministry says it is offering 32.5 million lek (€254,000) to the consultant that will provide legal assistance in the process, including negotiating terms with the lead managers. The short-listed consultants will be selected on June 22 before a second final stage decides the winner.

The selection of the legal consultant precedes the more important process of picking the lead manager of Albania’s upcoming Eurobond which the Albanian government has hinted could be up to €500 million.

Albania’s previous two Eurobonds were managed by Germany’s Deutsche Bank and U.S.-based JP Morgan Chase who acted as joint lead managers.

Public debt, currently at about 70 percent of the GDP and at a high level for Albania’s stage of development, is considered one of the key threats to Albania’s macro-economic stability, with its high servicing costs holding back much-needed public investment in key infrastructure, education and health sectors.

Albania intends to bring public debt, currently one of the region’s highest, to 60 percent of the GDP by 2021 hopeful that the economy will grow by 4 percent, but international financial institutions are skeptical such a scenario can be achieved.

The International Monetary Fund has warned the ambitious Euro 1 billion public private partnership project the government plans to implement on road, health and education infrastructure in the next four years could hamper efforts to reduce public debt by creating new accumulated unpaid debts to the private sector which if included in the debt stock could take it to 71 percent of the GDP.

External debt, which has been on a constant upward trend in the past decade as Albania diversifies its borrowing instruments accounted for 32.8 percent of the GDP at the end of 2017, according to the finance ministry. Most of country’s external debt has been obtained from international financial institutions such as the World Bank, the IMF but also includes bilateral debt from Germany and Italy, commercial loans and the Eurobond.

About two-thirds of external debt is denominated in Europe’s single currency and a fifth in U.S. dollar making it vulnerable to exchange rate fluctuations especially the weakening of the national currency which would increase borrowing costs.

The  current market conditions seems favorable as the European Central Bank continues to keep its key rates at a historic low of zero while Europe’s single currency currently trades at a 10-year low against the Albanian lek, making external debt repayments much cheaper for the Albanian government.

The last time Albania addressed international markets was in late 2015 when it managed  to secure €450 million in a five-year Eurobond at a coupon rate of 5.75 percent, down from 7.5 percent in its inaugural €300 million Eurobond in 2010.

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

Legal changes approved in 2015 allow the finance minister to borrow within the limits set by the budget without prior approval by Parliament in a bid to accelerate borrowing procedures in order to secure lower interest rates.

U.S.-based Standard and Poor’s and Moody’s, two of the ‘big three’ rating agencies, rate Albania B+ and B1, with a stable outlook

Both S&P’s B+ and Moody’s B1 ratings signify that the issuer or carrier is relatively stable with a moderate chance of default and that investors and policyholders of the rated entity are taking a low to medium risk.

Tirana Times
By Tirana Times June 11, 2018 15:22