Moldova's government to issue €610mn bonds to repay funds siphoned off by private banks

Moldova's government to issue €610mn bonds to repay funds siphoned off by private banks
By bne IntelliNews June 14, 2016

Moldova’s government has endorsed and submitted to lawmakers for approval a bill on the planned issuance of MDL13.6bn (€610mn) of government bonds, which the government will use to repay the central bank for emergency aid extended to three troubled banks in 2014-2015.

In March, the government and the National Bank of Moldova (BNM) signed a memorandum of understanding on the conversion of emergency aid extended to three troubled banks into government bonds. The banks received MDL13.6bn (€610mn) of aid - equivalent to 11% of Moldova’s GDP - from the central bank with state guarantees in 2014 and 2015.

The government required lawmakers to review and vote on the bill under emergency procedures. The volume of the bonds will be adjusted if any funds are recovered from the three troubled banks, the government said.

Liquidation procedures have been launched at the three banks - Banca de Economii, Banca Sociala and Unibank.

The bonds will have maturities of between one and 25 years and the coupon was set at 1.4% for maturities of one to nine years and 5.3% for longer maturities. The coupon paid by the government on the bonds was calculated based on the central bank’s inflation targeting policy, under which the monetary authority envisages long-term inflation of 5% p.a., the government explained.

Based on the latest GDP forecast from the ministry of economy, and on the schedule of the maturities and coupons planned by the government, the service of the bonds would account for 0.5% of GDP in 2017-2019.

The bond issue will nearly triple the country’s current domestic debt (6.4% of GDP) and push total public debt to some 37% of GDP. The country’s external debt, some 20.5% of GDP, is financed mainly from international financial institutions at preferential interest rates of around 1%. The domestic debt is financed from bills and bonds with maturities of under three years.

The country’s public debt reached MDL35.35bn at the end of April, or 26.9% of the country’s GDP, up from MDL33.51bn at the end of last year.

  Unit 2010 2011 2012 2013 2014 2015 Apr-16 after-bond
PUBLIC DEBT                  
Domestic eop MDL mn 5,305 5,842 6,159 6,676 7,075 7,225 8,407 21,997
Domestic eop % of GDP 7.4 7.1 7.0 6.6 6.3 5.9 6.4 16.7
Foreign eop $mn 1,116 1,143 1,246 1,290 1,306 1,337 1,363 1,363
Total eop MDL mn 18,871 19,227 21,185 23,522 27,470 33,509 35,356 48,936
Total eop $mn 1,553 1,641 1,756 1,801 1,759 1,705 1,788 4,678
Total eop €mn 1,172 1,276 1,324 1,309 1,446 1,560 1,576 4,124
Total eop % of GDP 26.3 23.3 24 23.4 24.5 27.5 26.9 37.2
Source: BNM, IntelliNews                

Yields in auctions on the primary market decreased during May, after the central bank cut the monetary policy interest rate from 19.5% to 13% in four steps this year. However, the Treasury has to pay double digit yields on the bonds and bills, and the coupons announced for the MDL13.6bn bonds look not attractive. Sold by the central bank at a discount on the secondary market, they could, however, attract investor interest, paving the way for a more active local capital market.

The yields on the first bills issued in June dropped by 9pp-10pp to around 11% compared to the bills issued in the first auctions in May, at yields of 20%-21%, according to data published by the central bank. The coupon payable on a semi-annual basis on the two-year bond - which is the sole maturity available for Moldovan bonds - is calculated for a yield of 16.25% in June, down from 23.32% in May.

SCHEDULE OF THE BONDS ISSUED BY MOLDOVA'S GOVERNMENT FOR REPAYMENT OF EMERGENCY AID TO BANKS
ISSUE MATURING Volume Coupon Maturity Payment [coupons plus principal] NPV payment discounted at 5%
2017                       50.0 1.4% 1                                                                681                                                            649
2018                     210.0 1.4% 2                                                                840                                                            762
2019                     230.0 1.4% 3                                                                857                                                            741
2020                     240.0 1.4% 4                                                                864                                                            711
2021                     260.0 1.4% 5                                                                881                                                            690
2022                     290.0 1.4% 6                                                                907                                                            677
2023                     310.0 1.4% 7                                                                923                                                            656
2024                     330.0 1.4% 8                                                                939                                                            635
2025                     360.0 1.4% 9                                                                964                                                            621
2026                     390.0 5.3% 10                                                                989                                                            607
2027                     420.0 5.3% 11                                                                998                                                            584
2028                     450.0 5.3% 12                                                            1,006                                                            560
2029                     490.0 5.3% 13                                                            1,022                                                            542
2030                     530.0 5.3% 14                                                            1,036                                                            523
2031                     570.0 5.3% 15                                                            1,048                                                            504
2032                     620.0 5.3% 16                                                            1,068                                                            489
2033                     660.0 5.3% 17                                                            1,075                                                            469
2034                     720.0 5.3% 18                                                            1,100                                                            457
2035                     780.0 5.3% 19                                                            1,122                                                            444
2036                     840.0 5.3% 20                                                            1,141                                                            430
2037                     900.0 5.3% 21                                                            1,156                                                            415
2038                     980.0 5.3% 22                                                            1,188                                                            406
2039                     950.0 5.3% 23                                                            1,107                                                            360
2040                     950.0 5.3% 24                                                            1,056                                                            327
2041                 1,053.7 5.3% 25                                                            1,110                                                            328
TOTAL                  13,584                                                            13,584

 

Data

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