Cyprus Bond Issue Successful After Good Ratings

by Lorys Charalambous, Tax-News.com, Nicosia

18 February 2002

A day after international ratings agency Standard & Poor's affirmed a stable outlook for Cyprus's economy, and gave a single A senior unsecured debt rating to a new Euro 550 million Eurobond issue, the Central Bank announced last Wednesday that the issue had been twice subscribed by investors in eleven European countries and the US.

Lead managers CSFB and Deutsche Bank priced the 10-year bond at 5.5% at a spread of 41 basis points over Euribor and 66 basis points over January 2012 Bunds.

The country's last debt issue in 1999 paid a premium of 99 basis points over Bunds, and fixed income analysts said that the improved premium reflected Cyprus's good chances of EU entry, the re-started Clerides/Denktash talks, as well as sound economic fundamentals.

"The successful issue once more reflects the confidence and creditworthiness enjoyed by the Cyprus Republic internationally," said the Central Bank.

In its ratings review, Standard & Poor's said it saw continuing improvement in the Government's financial position, but that early agreement on proposed tax reforms will be crucial to further narrowing of the budget deficit. The agency said that the prospect of EU entry continued to sustain the momentum behind wide-ranging structural reform.

Still, worries remain about the economy's resilience to external shocks: "The weakening of the external position of the financial sector, coupled with rapid credit growth (two leading indicators of financial system stress) and against the backdrop of financial and capital market liberalisation, provide cause for concern" said the review.