Serbia prepares new Eurobond issue worth USD 1bn - report

By bne IntelliNews September 11, 2013

The Serbian government is preparing a new Eurobond issue worth USD 1bn, seeking to finance current spending since its budget has enough funding to secure the state’s normal functioning only until the end of October, daily Blic reported, quoting unofficial information.

The preparations for the new Eurobond issue are towards the end – but the government intends to delay it as much as possible, hoping that its new fiscal measures would convince the international markets Serbia is on the right way to put its finances under control and help lower its borrowing costs, Blic’s unnamed source said. The source added that it is however clear Serbia will not be able to borrow at the favourable terms it used to earlier this year.

Serbia last tapped the international markets in February when it sold a USD 1.5bn Eurobond. It yielded 5.15%, down from 5.45% in the previous Eurobond sale in Nov 2012 when it placed a five-year Eurobond worth USD 750mn. Previously, Serbia sold a 10-year Eurobond worth USD 1bn yielding 6.625% in Sep 2012 and another 10-year USD 1bn Eurobond in Sep 2011, yielding 7.25%.

In June, Reuters reported that Serbia has hired Citigroup and Deutsche Bank as lead managers to arrange the sale of a US dollar Eurobond, adding the government also mandated for a euro-denominated bond, which is expected to be placed after the US dollar sale.

Economist Milojko Arsic told Blic that the government will need to borrow EUR 700mn by the year-end. He reminded that former finance minister Mladjan Dinkic has said he was leaving EUR 784mn in the state coffers when departing from the ministry last month. This means within two months the budget will remain with the riskily low amount of some EUR 400mn, Arsic said. He also noted that the new borrowing can come only via a Eurobond sale, which will hardly be at favourable terms.

“The time of the cheap borrowing has ended as now we can get a loan at an interest of 6-7%. The alternative is non-commercial loans, which are politically motivated,” Arsic said.

The current gap in the state budget reached RSD 125bn (EUR 1.1bn) after in August alone it rose by RSD 25bn, according to Blic. The finance ministry is due to release official data on the Jan-Aug budget performance in mid-Sep.

Serbia already inked a USD 500mn budget support agreement with Russia earlier this year and in July received the first tranche of USD 300mn. The ten-year loan is extended at a 3.5% interest and with a two-year grace period. The disbursement of the remainder, however, is conditional on Serbia signing a stabilisation agreement with the IMF, which process is currently stalled.

On the other hand, the World Bank said in August it will lend Serbia USD 200mn if the 2014 budget law is approved on time and the country pursues budget austerity measures and implements the planned structural reforms. The World Bank’s executive board will discuss the loan in December, and the country could still receive the bank’s support by the end-year.

In July, the Serb parliament approved an action plan for restructuring the 179 state-owned enterprises as well as a budget rebalance which aims to prevent the 2013 budget gap to exceed 4.7% of GDP. According to the World Bank, the 2013 budget revision is a step in the right direction but more needs to be done to curb public debt growth in the medium term.

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