Cyprus plans roadshows in May, bond issue before November, official says

Cyprus’s plans to begin staging roadshows in the next few months to regularly brief global investors in order to become ready to take advantage of market opportunities with bond issues, with the next one being scheduled before the end of October, the head of the public debt management office said.

“The investor relations function provides for intensive marketing, intensifying roadshows, and carrying them out on a regular basis no matter whether we are about to issue debt or not,” Phaedon Kalozois said on Thursday in a telephone interview. “We may stage a roadshow now without intending to issue a bond just to attract investor attention so that in case of a good market opportunity we can go ahead with an instant debt issue without having to stage a transactional roadshow first. This will help us remain on investors’ radar screen”.

The head of the public debt management office, a division of the finance ministry, said that the next round of roadshows are scheduled to be completed by the end of May, before Cyprus, which re-established market access almost five months ago, goes ahead with the next bond issue of an unspecified amount. “It is most likely to do so after the end of May and by October, but there is nothing preventing us from doing so if suddenly conditions become favourable because of exogenous factors,” Kalozois said.

The Cypriot government, which faces around €1.2bn in debt maturities this year, has already covered its budget and debt refinancing needs, he said.

Finance minister Harris Georgiades said in December that the government’s 2016 budget will be balanced. Government debt rose in 2015 by €109 to €18.9bn.

“What motivates us go to markets is to borrow in order to smooth out the maturity structure (of public debt), maintain our cash buffer and to establish the Republic of Cyprus as a sovereign issuer in international markets,” Kalozois said. “We may borrow a large amount this year and use a considerable portion of it to buy back debt or exchange bonds”.

Kalozois said that while the exact amount of the government’s cash buffer is classified, it is sufficient to help the finance ministry deal with both “Cyprus-related risks but also with market risks” and added that improving the maturity structure of Cyprus’s public debt will make maturities in 2019 and 2020, together totalling around €4bn, more manageable.

Cyprus used almost half of the €1bn debt it borrowed in October to exchange it with bonds maturing in 2019 and 2020 and also repay an outstanding bond in the possession of Bank of Cyprus. The country lost market access in May 2011, 13 months before it requested an international bailout, and almost two years before completing negotiations with international creditors.

“We have improved our risk indicators,” Kalozois said. “In 2011, the percentage of debt maturing within 12 months was 21 per cent of public debt, whereas now it is only 6.1 per cent”.

Kalozois said that the recent increase in Cyprus’s bond yields is “not related to the country risk” and reflects investor concerns related to the European Union’s handling of the refugee crisis, the civil war in Syria, negotiations with the UK which wants concessions from the EU and concerns about China’s economic performance.

The yield of the Cypriot ten-year bond maturing in 2025 rose to 4.09 per cent on Friday, the highest since November.

“We have a general increase in secondary market yields,” he said. “It is not restricted to Cyprus as we also have an increase in the yields of Ireland, Portugal, Greece, Spain and Portugal. In the case of Portugal, yields rose even more”.

Cyprus’s spreads rose by 64 basis points since mid-December, while Portugal saw an increase of 104 basis points, he said. The spreads reflect the difference in secondary market yields of a country compared with Germany’s.

The director of the public debt management office said that, as part of the strategy to also develop the domestic bond market and improve its infrastructure, Cyprus has adopted the debt recording and management system of the Commonwealth, a piece of software that offers advocacy, policy advice, support and formulating debt management strategies, as well as capacity building initiatives.

The council of ministers already approved the adoption of the “state of the art” software system registering debt data, he said.