Montenegro to offer a long-planned Eurobond to international investors on May 12-13, aiming to refinance other two Eurobond issues maturing in 2015 and 2016, the government said after its cabinet meeting on May 8.

The government already started a May 5-9 roadshow in Europe, including Vienna, London, Zurich, Geneva, Munich and Frankfurt, it said in a statement.  

The new Eurobond is part of this year's budget but it was already in the plans last year. Yet, back then the government had to instead borrow EUR 102mn and repay the bank guarantee activated on aluminium firm KAP's state-guaranteed bank debt. Later on, thanks to better than expected revenue it managed to escape more borrowing to support the budget deficit.

Under last year's put-off plan, the government planned to issue to EUR 200mn Eurobond to refinance the two older Eurobond issues and other maturing debt. This would have helped refinance some 50% of the old bonds and ease the pressure on the public finances in the coming two years.

Montenegro already hired Deutsche Bank, Citibank and Erste for the new Eurobond issue and started work with the three international banks in 2013 to prepare the needed documentation for the debt sale.

Borrowing might be more than planned EUR 240mn

In January, the government adopted its Pre-Accession Economic Programme (PEP) for 2013-2016, saying it is considering the option of borrowing more than the planned EUR 240mn in 2014, hoping for better terms to refinance its two Eurobond issues sold in 2010 and 2011. The plan is part of a strategy to review credit agreements and debt issues already signed and sold at high borrowing costs in the past and try to take measures to reduce the refinancing costs.

As a result, the government has said, at the right conditions the bond issuing might be bigger than the envisaged EUR 240mn for this year's budget financing. Also, issuing bonds of a larger size would provide for lower interest rates, while making the securities more liquid and attractive to investors.

Back then the government estimated that a new bigger Eurobond at favourable terms would also lower the pressure on the bond repayment in 2015 and 2016, since with a potential restructuring equal to 50% of the existing liabilities, the debt repayment needs would drop by EUR 100mn in 2015 and by EUR 90mn in 2016. According to the PEP estimates, Montenegro will need some EUR 450mn for refinancing the budget deficit and debt in 2015 and around EUR 380mn in 2016.