Croatia raises €1.25bn via 10-year Eurobonds as yields fall to historic lows

Croatia raises €1.25bn via 10-year Eurobonds as yields fall to historic lows
By bne IntelliNews March 14, 2017

The Croatian finance ministry sold €1.25bn worth of 10-year Eurobonds with an actual yield of 3.20% and a coupon rate of 3%, the ministry said in a March 13 statement.

Improving macroeconomic performance during 2016 and restored political stability following the September 11 snap polls has been supporting the outlook for the Adriatic country’s borrowing performance this year. All three major rating agencies, Moody’sFitch and Standard & Poor's, rate Croatia at two notches below investment grade with stable outlooks.

Croatia will use the funds raised to refinance the €1.5bn worth of Eurobonds maturing on April 27. The coupon rate on the new issue showed a significant decline from the coupon rate of 6.25% on the papers maturing next month.

The demand for Croatian Eurobonds was high at €3bn while the final price came 30bp lower than the initial price guidance, according to the ministry.

At the previous 10-year Eurobonds auction held in March 2015, Croatia raised €1.5bn as interest rate and yields fell to historical low levels of 3% and 3.25% respectively, thanks to the European Central Bank’s (ECB) expansionary monetary policies.

Last week, Croatia mandated Citi, HSBC, Morgan Stanley and UniCredit to hold investor meetings on March 10 for the 10-year Eurobond issue.

Finance Minister Zdravko Maric announced back in January that the government was planning to hold a Eurobond auction in the first quarter of this year in order to refinance the €1.5bn worth of Eurobonds maturing on April 27. The Croatian government’s 2017 budget includes a €1.5bn Eurobond issue, but Maric said at the time the size would depend on demand. 

A sovereign Eurobond issue was previously believed to be imminent in July 2016, but the collapse of the previous Croatian Democratic Union (HDZ) and Bridge of Independent Lists (Most) coalition prompted the government to scrap its plans. At the beginning of June, the Croatian government delayed the issue due amid domestic political uncertainties after holding investor meetings in May as investors sought a higher premium.

Croatia needed HRK27bn in 2016 just to refinance maturing bonds and cover the budget deficit, excluding the treasury bills. In 2017, it will need HRK30bn to refinance bonds and pay accrued interest.

Croatia, which entered the European Commission’s excessive deficit procedure (EDP) in January 2014, has been trying to reduce its deficit over the past two years. The European Commission is keeping Croatia among the EU members experiencing excessive imbalances due to the Adriatic country’s vulnerabilities linked to high levels of public, private and external debt, both largely denominated in foreign currency, in a context of low potential growth.

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