The European Bank for Reconstruction and Development has issued the first Serbian dinar bond by an international lender, in an expression of confidence in the Balkan country’s economic stability as it seeks to help it reduce currency risk.
The three-year, 2.5 billion Serbian dinar ($22 million) bond will trade on the Belgrade Stock Exchange with a floating rate of 3-month BELIBOR – the rate on dinar deposits in the interbank market – plus 0.4 percent.
The EBRD said on Tuesday it hoped 15-20 percent of its lending to Serbia could eventually be in dinars, similar to its overall proportion of local-currency lending worldwide. This first dinar bond was more than a decade in the making.
The bank has issued bonds and lent in local currency in a number of developing markets, including Armenia, Georgia, Hungary, Kazakhstan, Romania and Russia.
“In the last year or two, there’s certainly clear measures and clear progress that make it much more viable today and much more reasonable today,” EBRD Serbia head Daniel Berg told a news conference at the National Bank of Serbia.
He told Reuters the EBRD already had interest from three potential borrowers for the entire 2.5 billion dinars – one municipality, one bank and one large corporation – although it would prefer to spread the lending.
The EBRD has so far lent 4.5 billion euros to Serbia.
Serbia’s branch of Austria’s Raiffeisen bank is underwriter of the bond. The bond is AAA rated, its CEO Zoran Petrovic said. Citigroup acted as marketing agent.
“We believe that interest should be great… and this should demonstrate trust in the local economy and macroeconomic policy,” Serbian central bank governor Jorgovanka Tabakovic told a press conference.
With more than 70 percent of its borrowing in foreign currencies, mostly the euro, Serbia has one of the highest levels of foreign-currency borrowing of the countries in the EBRD regions, the EBRD said.
Unhedged borrowers in foreign currencies can be exposed to significant exchange-rate risks, as in the case of millions of central and eastern European homeowners who took out Swiss franc mortgages to benefit from low interest rates but were caught out when the currency surged, posing serious risks to banks in Poland, Croatia and elsewhere.
Serbia last week adopted a draft budget for 2017 that would reduce its deficit to 1.7 percent of economic output, with growth expected at 3 percent.
