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Serbia refinanced the largest debt

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Today, the Republic of Serbia successfully returned to the dollar securities market, after a seven-year break, due to the early redemption of bonds from 2011 in US dollars at a yield rate of 7.5 percent and a coupon rate of 7.25 percent.
After the presentation of the achieved macroeconomic results of the Republic of Serbia to the international investment public, as the country with the smallest economic decline in Europe this year, as well as the largest expected growth in the next, today we started collecting bids for a new bond issue worth 1.2 billion dollars.
– The demand of over six billion dollars was realized by more than two hundred respectable, primarily American and British funds, insurance companies and banks, which is five times more than the offered value of the issue. All this shows the great trust of investors in the reforms implemented by the Government of the Republic of Serbia in the field of economy and public finances – said the Minister of Finance Sinisa Mali.
The new ten-year bonds were issued in the amount of 1.2 billion US dollars at a yield of 2.35 percent, a coupon rate of 2.125 percent and a final interest rate in euros, after the realization of a hedging transaction, of 1.066 percent. The realized rate is seven times lower than the rate of previously issued bonds from 2011, which was also the goal of the new issue. The bonds will be listed on the London Stock Exchange
– We used favorable conditions, the best this year, in order to once again enter the international financial market and replace the more expensive debt with a much cheaper one. Also, this is the lowest interest rate that our country has ever received on the capital market, better even than the issue of bonds from June and November 2019 in a time of significantly more stable market conditions – said the Minister of Finance Sinisa Mali
He added that the funds of the new issue are repaying 900 million dollars of bonds issued in 2011, out of a total of 1.6 billion dollars due in September 2021.
– In this way, Serbia managed to repay most of the bonds early this year, save on interest payments next year and thus reduce the total need for financing in 2021, so that we can be as strong and ready as possible for next year – said Mali.
The Minister also said that, guided by the best international practice of active public debt management, the Ministry of Finance concluded a cross-currency swap transaction by which it converts liabilities based on the issued bond into euros at a significantly lower final interest rate.
The Republic of Serbia will pay its liabilities based on the issue denominated in dollars in euros at a coupon rate of 1.066% to the nominal value of the issue after the conversion of 1.016 billion euros.
– This means that the Ministry of Finance used the opportunity of a favorable exchange rate of the euro and the dollar at this time as well as the current divergence between dollar and euro interest rates on the international capital market and achieved the best borrowing price, optimizing the currency structure of public debt from the risk of changes in the exchange rate – the Minister explained. In this way, additional savings of around 96.6 million euros were achieved.
As he said, in this way, the Republic of Serbia is introducing a new hedging practice for the first time, that is. use of financial derivatives for the purpose of hedging against foreign exchange and interest rate risk, in accordance with the internationally recognized ISDA standards (International Swaps and Derivatives Association). This gives a strong impetus to the development of the domestic financial market through the example of active management of financial risks by the Government of Serbia.
– Return to the dollar securities market and a new issue denominated in dollars, allows Serbia to remain present in the index of emerging market bonds – EMBI Index, which ensures its visibility in the US capital market, as well as on the wider international investment map – concluded the Minister of Finance.
By early repayment of dollar bonds with new issue funds, the share of general government public debt in GDP remains at the previously projected level, below 60%, while at the same time favorable market conditions are used to provide additional funds for debt servicing in the next year, Novosti reports.

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