Serbia borrows another EUR 3 billion – Repaying old debts with new, more expensive bonds

Serbia has successfully issued new bonds, borrowing an additional EUR 3 billion. However, their sale below par value means that the actual cost of borrowing is even higher, and a third of the money raised will go to refinancing the old debt.

Minister of Finance Sinisa Mali informed the public that Serbia had borrowed again, around EUR 3 billion cumulatively, but in three tranches, of which two are Eurobonds in euros and one is Eurobond in dollars.

These bonds were sold in one day, which, according to Mali, confirms the strong confidence of investors in Serbia’s stable credit profile and economic policy.

– Serbia has recorded very high demand in the amount of more than EUR 8 billion. Investors invest in this type of securities when they believe in the country’s long-term stability, which tells us that Serbia’s financial image in the world has changed drastically over the last decade – said Mali.

So, two Eurobonds were issued in euros, with maturities of five and twelve years, in the amount of one billion euros and 900 million euros. The five-year bond was sold at a coupon rate of 4.25%, while the twelve-year bond was sold at a coupon rate of 4.875%.

The ten-year dollar Eurobond was sold in the amount of 1.25 billion euros. However, Serbia, using instruments for hedging against currency risk, transferred (swapped) its dollar liabilities into euros, which, according to the explanation of the National Bank of Serbia, will save on interest costs, given that the coupon rate in euros was 4.66%.

However, what is not highlighted, and which can be seen in the Official Gazette, is that the yield on all three tranches is higher than the coupon, which means that these bonds were sold below their nominal value.

The first tranche has a yield of 4.397%, this difference compared to the coupon, which is 4.25%, means that investors bought the bonds at a price lower than the nominal one, which indicates that the effective cost of this state borrowing is somewhat higher.

So, if the individual value of the bond is EUR 100,000, the investor will actually pay EUR 99,353, while the state will eventually return the full EUR 100,000 plus will pay the agreed interest every year.

For the second tranche, investors will pay even less, namely EUR 97,384, while for the third they will pay EUR 97,644.

Mali also explained that the first tranche would be used to refinance earlier debt, namely for the early redemption of bonds maturing next year.

– By early redemption of bonds maturing in 2027, we are actively managing public debt and further strengthening the stability of public finances. In addition, we are not stopping with projects for the development of the country because they bring more new jobs and further GDP growth – he emphasized.

The second tranche is presented as a green bond and these funds will be used to finance green projects - such as improving rail infrastructure, purchasing trains, the Belgrade Subway project and others. While the funds from the third tranche will be used for large capital projects within the framework of the national strategy “Serbia 2030”, explained Mali.

Ministarstvo finansija Republike Srbije

Narodna banka Srbije Beograd

Momentum Securities a.d. Novi Sad

Ministry of Finance

National Bank of Serbia

NBS

Momentum Securities

Siniša Mali

Nenad Gujaničić

bond issue

green bond

national strategy Serbia 2030

public debt

public debt increase