Government says it is seeking 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 in November 2010
TIRANA, April 14 – Soon after securing Euro 250 million from Deutsche Bank, the Albanian government has issued a new call to borrow around Euro 300 million from international markets as its debut 5-year Eurobond matures later this year.
In an announcement published by the Finance Ministry, government says it is seeking 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 in November 2010.
The Finance Ministry says it is seeking proposals for a lead manager, the commercial or investment bank which will have the primary responsibility for organizing the Eurobond issuance and create the syndicated which will negotiate terms with the issuer and assess market conditions.
The Albanian government says it is open to both a Euro or USD denominated bond as the issue will not be swapped and therefore aspects like currency risk will not be taken into consideration for the ultimate choice. Banks and financial institutions are invited to submit their proposals to the Finance Ministry until April 22, 2015.
The timing seems 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.
Finance Minister Shkelqim Cani has earlier said government is planning to borrow Euro 300 million to 500 million from international markets so that lending to local businesses and households, currently struggling at growth rates of 2 to 3 percent, is not affected.
“The new Eurobond is estimated to have a maturity of 5 to 10 years, denominated in US dollar or Euro, but we will follow the markets in order to decide. The amount could be from Euro 300 million to 500 million in order not to affect the debt ceiling but to replace one debt with another one,” said Cani.
In late 2010, Albania issued its first-ever Eurobond of 300 million euros with a maturity of up to five years and an interest rate of 7.5 percent. The money was mainly used to pay off a costly syndicated loan to fund the costly Durres-Kukes highway linking Albania to Kosovo.
The debut Eurobond issue in November 2010 came as international financial markets stabilized and after some changes were approved in Parliament to the government deal with Deutsche Bank AG and JPMorgan Chase & Co. which managed the Eurobond sale. The deal had been put off several times after the Greek debt crisis rattled markets.
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.
Earlier this month, 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. The ministry says it will pay Deutsche Bank an interest rate of 1.3 percent above the benchmark rate currently at 0.5 percent.
Under the deal, the Albanian government will also pay a 1.25 percent commitment fee for the 10-year loan with an average life of 8.6 years.
The loan is guaranteed by the IBRD, the World Bank’s lending arm for middle income and credit-worthy poor countries, which is guarantor for Euro 200 million, or 80 percent of the total loan.
Recent legal changes allow the Finance Minister to borrow without prior approval by Parliament within the limits set by the budget. Government argues the legal changes, which were approved again by the Parliament last February after the law was turned down by the President, are aimed at accelerating borrowing procedures in order to secure lower interest rates.
