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Serbia’s debut in sustainable bonds raises $1.5 billion for green initiatives

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The government recently made its debut on the international market by issuing sustainable bonds (ESG), raising $1.5 billion to fund sustainable development, green initiatives and socially responsible projects, according to statements from both the Ministry of Finance and the National Bank of Serbia. Investor demand surpassed $6.5 billion, more than four times the nominal value of the eurobonds sold.

These bonds have a ten-year maturity period and were issued with a six percent coupon rate in dollars. Following the issuance, a swap transaction was executed to secure a lower interest rate of 4.754 percent, resulting in savings of nearly one percentage point compared to if the bonds were issued in euros. This move not only reduces exposure to exchange rate fluctuations between the dollar and the euro but also lowers the overall borrowing costs.

“This demonstrates our timely entry into the international capital market, especially in a year when financing is costly due to global economic uncertainties. Despite this, Serbia has managed to secure affordable funding through effective management and market positioning,” stated the finance minister.

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Highlighting that these are Serbia’s first dollar-denominated sustainable bonds, the finance minister emphasized their appeal to investors who previously lacked opportunities to invest in this sector in dollars.

Additionally, the country’s president recently emphasized the importance of seizing the current opportunity to secure cheaper financing amid potential future crises. Mihailo Gajić, Executive Director of the Libertarian Club (LIBEK), stressed the need for substantial funds to kickstart investment cycles, particularly for the Expo initiative or “Leap into the Future 2027.”

Gajić explained, “We need to raise funds now, as our reserves are insufficient. With impending loan repayments and infrastructure investment requirements, securing financing is crucial. Serbia’s ability to obtain an investment-grade rating, anticipated by year-end from three international rating agencies, would attract greater investor interest and lower borrowing costs.”

Forecasts suggest a decline in international interest rates alongside decreasing inflation, translating to lower yields on government bonds.

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Milan Nedeljković, Dean of the Faculty of Economics, Finance, and Administration, acknowledged that current financing conditions are less favorable compared to three years ago. While major central banks are expected to ease monetary policies, resulting in lower interest rates, Nedeljković emphasized the importance of Serbia improving its credit rating to enhance investor appeal and reduce borrowing costs.

The finance minister noted the dominance of dollar-denominated bonds on the international capital market, citing examples from neighboring countries like Hungary, Poland, Romania, Montenegro, and Slovenia, which have all issued significant dollar-denominated bonds.

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