NICOSIA, Cyprus – Cyprus returned to international markets on Wednesday after raising 750 million euros ($1 billion) with its first public issue of bonds since last year’s bailout saved it from bankruptcy.
An initial target of 500 million euros was oversubscribed four times, and allowed authorities to raise an extra 250 million euros through the five-year bonds, the Finance Ministry said. The bonds carried a 4.75 per cent interest rate, in an issuance that comes a year earlier than initially anticipated.
Authorities hailed the unexpectedly strong issuance as a sign that the east Mediterranean island nation is starting to regain its economic footing.
“Trust in the Cypriot economy and its prospects has been confirmed in a tangible way,” Finance Minister Harris Georgiades told reporters, adding that the money will help pay down the country’s debt — now at 118 per cent of gross domestic product and inject needed liquidity into banks.
In March 2013, Cyprus received a 10-billion-euro rescue negotiated with other eurozone countries and the International Monetary Fund, including terms that crushed its banking sector by sanctioning the seizure of uninsured deposits in the country’s two largest banks and plunged it into a sharp recession.
Georgiades stressed that the government will not let up on its economic reform drive, saying that sticking to the bailout’s terms had helped the country regain investor confidence. The reforms included consolidation in the bank sector, shrinking an oversized public sector and privatizing state-owned companies.
Cyprus has fared better than expected with a shallower recession than early projections had indicated. It has also received four straight positive reviews from its creditors of its rescue program and has earned its first credit rating upgrades after years, although it still remains deep into junk territory.
But the country isn’t out of the woods yet. Unemployment stands at around 17 per cent, while its wobbly banking sector is still weighed down by a large number of bad loans resulting in a credit crunch that’s stifling growth.
Cyprus was effectively knocked out of the markets in mid-2011 after a string of credit rating downgrades triggered by a banking crisis and exacerbated by unrestrained government spending.
The country tested the markets in April when it raised 100 million euros in six-year bonds issued through a private placement, at an interest rate of 6.5 per cent.
Economic analyst Stelios Platis said reaching out to international markets now is a smart move to take advantage of a prevailing “bubble” caused by eager investors looking for opportunities.