Croatia issued €1.275bn through a Eurobond maturing in 2030 at a yield of 2.953% and bearing a coupon rate of 2.75%, the government announced on November 16. This is Croatia's most favourable loan ever and has the longest maturity ever realised on international markets.
The funds will be used for early repayment and refinancing of the debt of state-owned companies in the transport sector, Hrvatske ceste (HC), Hrvatske autoceste (HAC), and Rijeka Zagreb motorway (ARZ). The debt of the three companies amounts to €5.2bn, or more than 13.5% of public debt.
Prime Minister Andrej Plenkovic called the issuance a huge success, noting that in this way government has resolved the debts that are coming due right now, roughly €1.3bn, which are also the most unfavorable, according to hrt.hr. Plenkovic pointed out that Croatia will save roughly €21.5mn per year.
This is Croatia’s second Eurobond issue this year, after the country sold €1.25bn worth of 10-year Eurobonds with an actual yield of 3.20% and a coupon rate of 3% back in March. Improving macroeconomic performance during 2016 and restored political stability have been supporting the outlook for the Adriatic country’s borrowing performance this year.
“The finance ministry has chosen a favourable issuance of the Eurobonds in a strategic bid, given the recent announcement of data on GDP and the reduction in public debt,” the government said in a statement.
The demand for Croatian Eurobonds was high at €3.38bn. Most of the demand came from CEE countries, the UK, Austria, Germany and Benelux countries.
Lead arrangers were Banca IMI/Privredna Banka Zagreb, Barclays and JP Morgan.
Earlier this month, the European Commission (EC) raised its 2017 GDP growth forecast for Croatia to 3.2% in its Autumn 2017 Economic Forecast up from 2.9% in its spring forecast. GDP expansion will be supported by domestic demand.
The EC sees Croatia’s general government deficit at 0.9% of the GDP this year, while general government gross debt should reach 80.3% of the GDP in 2017 and fall to 77.4% of GDP next year.
The EU's Economic and Financial Affairs Council (ECOFIN) closed excessive deficit procedures (EDP) for Croatia in June, thanks to the improvements in the Adriatic country’s budget metrics. The country had been subject to the procedure since January 2014, when it was found to be in breach of both deficit and debt criteria. In addition, the country’s economy has recovered after a long recession.