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Cyprus eyes first post-bailout public bond

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By Elaine Moore and Robin Wigglesworth

Cyprus is set to become the latest peripheral eurozone country to return to global debt markets just one year after its controversial €10bn bailout by international lenders.

The island state has hired five banks to set up meetings with possible investors in a new sovereign bond as government borrowing costs across peripheral Europe continue to fall to record lows.

Although the country issued €100m of six-year bonds through a private placement in April, this will be the first formal bank-managed bond issue since its rescue.

Deutsche Bank, Goldman Sachs, HSBC, UBS and VTB Capital are arranging meetings with fixed income investors in Europe and a euro bond sale is expected to follow shortly.

Cyprus is still recovering from the banking collapse that led to a bailout by the International Monetary Fund, European Central Bank and European Commission in 2013.

Europe has a number of support facilities to provide loans to countries that require assistance, often in conjunction with bodies like the IMF. On Tuesday one of these facilities, the Macro-Financial Assistance programme, raised €500m on the capital markets to fund a loan to Ukraine, by tapping an existing 10-year bond.

The conditions imposed on Cyprus by creditors caused political arguments within the country, which remains mired in recession.

In the first three months of this year the country’s economy shrank, although slightly less than expected. Unemployment increased over the past year to 16.4 per cent, and more than 40 per cent of young people under 25 remain jobless, while Cypriot anger at the consequences of the bailout is still strong.

However, action to restructure the domestic banking sector, compliance with the programme attached to the bailout and lower than anticipated contraction of GDP has boosted investor confidence in the country.

Standard & Poor’s upgraded the country’s credit rating to B after its economy shrank 5.4 per cent last year, less than expected by the IMF, and the yield on Cyprus’ benchmark 2020 bond has fallen to a four-year low of 4.75 per cent, down from more than 16 per cent at the peak of the eurozone crisis.

The successful sale of debt in April, with a 6.5 per cent coupon, is thought to auger well for a new bond issue. One analyst said the bond could come at a lower yield following the general reduction in bond yields from countries worst affected by the eurozone crisis.

Adding to the positive news, Bank of Cyprus recently announced that it would release some funds that were frozen when the bank underwent a recapitalisation, and the government this month eased back on the capital controls imposed in the wake of the rescue to stop money flowing out of the banking sector. International money transfers are still vetted, but Cypriots can now open domestic bank accounts freely.

Two other crisis-hit countries in the eurozone returned to the bond markets after lengthy absences this month: both the Greek and Portuguese governments marketed debt with yields falling to much lower levels than those seen in recent years.

– ft.com

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