Important factors to consider in residence planning
Cyprus is planning its first sale of long-dated government debt since the financial crisis that left the island in need of a EUR 10bn bailout.
According to one Cypriot official, the country plans to raise about €1.5bn before the end of the year as stimulus measures from the European Central Bank and economic recovery spurs renewed investor interest, pushing down the country’s borrowing rate.
The sale planned is a benchmark, 10-year bond. Two years ago, Cyprus suffered a banking collapse that resulted in capital controls, the unexpected imposition of losses on depositors and rescue funding by international creditors.
However, in contrast with fellow bailout-recipient Greece, the country swallowed the reforms demanded by its creditors, including the adoption of new foreclosure and insolvency laws, and has been subsequently praised by the International Monetary Fund for accepting difficult change and producing positive results.
Last year, Cyprus made the swiftest debt market comeback of any bailed out country in Europe, selling EUR 750m in five-year debt at a lower than expected rate of 4.85 per cent.
Finance minister Harris Georgiades told the Financial Times that Cyprus had been successfully implementing an ambitious reform agenda.
“The public finances have been consolidated, the banking sector stabilised and the economy has exited the recession and is registering positive growth,” he said.
“Confidence has been restored and market access re-established. Market conditions permitting, we are planning a new bond issuance by the end of the year in line with our annual funding programme, but the exact timing and details have yet to be determined.”
Officials in Nicosia say the maturity of the next bond issued will depend on international market appetite, but according to one Cypriot financial analyst close to the government it “pretty much” has to be a 10-year issue.
Earlier this year, the IMF declared that Cyprus’s economic and fiscal outlook was better than expected, as the economy eases out of recession, growing 0.2 per cent in the first quarter of the year.
President Nicos Anastasiades has stated that his country is sufficiently robust to withstand the tremors caused by renewed political instability and economic uncertainty in Greece, where the government has railed against austerity measures set by lenders.
Yields on the existing 2021 year bond issued by Cyprus have dropped from 5.75 per cent in February this year to 3.69 per cent as prices for the country’s bonds rise.
One analyst forecasts that Cyprus will be able to borrow over 10 years at a rate of 3.5 per cent.
In September, global credit rating agency S&P lifted its long-term rating on Cyprus one notch from B plus to double B minus, a decision that the agency said reflected economic and financial stability from the removal of capital controls in April 2015.
“The robust economic performance has been based on resilient business services and tourism and gradually recovering private consumption, supported by the euro depreciation and decline in oil prices,” it stated.