Interest in Republika Srpska's debut Eurobond disappoints

Interest in Republika Srpska's debut Eurobond disappoints
By bne IntelliNews June 23, 2018

Bosnia & Herzegovina’s smaller entity Republika Srpska placed its first Eurobond on the Vienna Stock Exchange on June 21, however, it did not succeed in selling the whole €200mn issue, a statement on the government’s website showed on June 22.

The government decided to place the bond in May, claiming that the capacity of the domestic market is limited and the entity needs to raise funds on international markets. 

However, it only managed to get away bonds worth €168mn on June 21, which were sold at an annual interest rate of 4.75%. The bond will be listed on the Vienna bourse.

Although the issue did not attract the desired interest, the government said it was satisfied with the result.

“The Ministry of Finance expresses satisfaction with the fact that the planned issue was placed successfully and Republika Srpska has positioned itself for the first time since its establishment as a relevant subject on the international financial market,” the statement said.

Republika Srpska cancelled several auctions of six-month T-bills on the domestic market this year after Bosnia received a second loan tranche of around €75mn by the International Monetary Fund. The entity decided in May to increase its long-term borrowing to BAM540.13mn (€276.16mn) this year from the initially planned BAM477mn.

Previously, Republika Srpska planned to try placing bonds on international markets in 2015 with the support of the World Bank, but gave up the idea.

Analysts have warned that Republika Srpska’s debt is mounting and could cause serious troubles in the next few years. There have also been reports in local media that the entity having difficulty paying wages and benefits to workers in the public sector due to its financial troubles. This, combined with the political instability caused by the entity’s leadership, is pushing investors away.

Bosnia is divided into two autonomous entities – Republika Srpska and the Muslim-Croat Federation. The Serb-dominated Republika Srpska is the smaller entity, and its President Milorad Dodik is using highly nationalistic rhetoric and has been threatening to secede from Bosnia for years. This has intensified — as has similar rhetoric from other political leaders in the country — ahead of this autumn’s elections. Dodik is also causing Bosnia significant delays on its path towards the European Union and Nato.

There has even been speculation about conflict again erupting in Bosnia. International media reports have suggested that Dodik is arming the entity with support from Russia and that he could spark a new conflict in the area.

The flop of Republika Srpska’s offering is in contrast to successful “exotic” bond issues from the CEE/CIS region, but it was launched on the market at a time when emerging markets bonds are out of fashion due to a combination of politics, looming crises in several countries and the start of tightening by the US Federal Reserve bank meant there was very little activity in the region in May

By contrast, nearby Macedonia made its successful sixth international offering in January, a seven-year €500mn Eurobond with an annual interest rate of 2.75%, which was a historically low interest rate for the country. Similarly, Montenegro’s €500mn seven-year Eurobond issued in April was at a record low interest rate for Podgorica. 

Further afield, Central Asia’s poorest nation, Tajikistan, raised $500mn from its inaugural Eurobond, which priced at 7.125% for a 10-year term last September, with the aim of funding construction of the giant Rogun hydropower dam. Dushanbe is understood to be planning to issue more notes following its successful international debut, Radio Ozodi reported in April. 

Neighbouring Uzbekistan is hopeful that it is moving towards its own international bond market debut that could be worth up to $1bn, though the issue has not yet received the green light from the administration of President Shavkat Mirziyoyev, the Nikkei Asian Review reported in May, citing Finance Minister Djamshid Kuchkarov.