TIRANA, Sept. 23 – Albania will start a roadshow in the next few days as it seeks to raise 300 million Euros or more in a five to seven-year Eurobond denominated in Euro or USD to refinance the five-year inaugural Euro 300 million Eurobond it issued back in November 2010.
Albania has recruited Deutsche Bank and JPMorgan to help it tap investors in Europe, with meetings getting underway on 28 September, writes the Financial Times.
The prestigious newspaper says Albania is making a rare appearance in the bond markets “set to join exotic names such as Iraq, Ethiopia and Ghana in the post-summer bonds rush.”
The previous euro-denominated bond, totalling €300m and maturing next November, currently yields 3.7 per cent.
The finance ministry had initially set the end of July 2015 as the deadline for the Eurobond issue.
“Every delay in the Eurobond issue date and its postponement to the maturity date would be accompanied by an increase in interest rates,” said the ministry responsible for the Eurobond issue.
The Albanian government expects to issue its new Eurobond at considerably lower rates compared to its inaugural 7.5 percent rate in late 2010.
Fiscal consolidation, a floating exchange rate, an ambitious program of reforms, support by the IMF, progress in EU integration after obtaining the candidate status in mid-2014, the payment of arrears and a considerable level of FDI are considered as advantages for Albania in its new Eurobond issue.
The new Eurobond will serve to refinance the inaugural Euro 300 million Eurobond in 2010 and replace part of the existing debt with lower cost debt.
In its mid-term 2015-2017 debt management strategy, the Albanian government has also envisaged scenarios in case of failure to borrow from international markets through a Eurobond.
“In case of failure to issue a new Eurobond, the refinancing of the existing Eurobond will be carried out through a more costly five-year Euro 200 to 250 million credit line,” says the ministry. Such a scenario would increase the cost of debt service and at the same time put more pressure into the domestic market because of increasing internal borrowing by 7 to 14 billion lek (Euro 49 to 98 million).
In an even worse scenario, Albania would borrow about 35 billion lek (Euro 245 million) from the internal market which would sharply increase costs and negatively affect lending, already at sluggish growth rates of 2 to 3 percent.
The timing initially seemed favourable as the European Central Bank continues keeping its key rate at a historic low of 0.05 percent and has undertaken quantitative easing of Euro 1.1 trillion into the ailing eurozone economy, considerably cutting bond yields in international markets, but the escalation of the Greek crisis could have negative impacts.
The government’s new borrowing comes at a time when the Albanian economy is expected to accelerate to 3 percent in 2015, up from an expected 2 percent in 2014 but public finances continue struggling as public debt stands at a record high of around 70 percent of the GDP.
Last April, Albania selected Deutsche Bank, Germany’s biggest bank, for a Euro 250 million 10-year loan to support public investments and cover its budget deficit. Albania is rated B1 by Moody’s and B by Standard & Poor’s.
