Croatia’s latest Eurobond heavily oversubscribed

Croatia’s latest Eurobond heavily oversubscribed
By bne IntelliNews June 11, 2020

Croatia has issued an 11-year, €2bn Eurobond with a coupon of 1.5% and a yield of 1.643%, Finance Minister Zdravko Maric announced on June 11. 

The issue was expected, as Zagreb needs to raise funds to refinance an earlier bond issue and to finance measures to support the economy, which was badly hit by the coronavirus (COVID-19) pandemic.

Maric said on June 11 that the bond had been heavily oversubscribed, with investor interest amounting to €8.4bn, or 4.2 times the offered amount. There were more than 400 potential investors. 

"I don't remember such a great interest from quality investors around the world," Maric said.

The finance minister concluded that "investors valued the confirmation of Croatia's investment rating, progress in the process of introducing the euro and efficiency in the fight against COVID-19”.

The new Eurobond will refinance a $1.25bn bond issued ten years ago, which matures on July 10. The old bond had an interest rate of 6.6% compared with the 1.5% for the latest issue, representing a significant saving.

The joint issuing agents were Banca IMI/Privredna banka Zagreb, Barclays, Deutsche Bank and JP Morgan. 

Ahead of the issue Raiffeisen analysts forecast “pretty tight pricing”, as they expected the Croatian government to capitalise on positive newsflow, as the latest European Central Bank (ECB) banking review helped it to move closer to entering the Exchange Rate Mechanism (ERM2). 

On June 9 Prime Minister Andrej Plenkovic sent letters to leaders of EU member states and the European Commission asking for their support for its efforts to join ERM2 and the European Banking Union “as early as July”, according to a government statement. 

"All benchmarks and obligations have been entirely met in early May, before the set deadline, and an additional confirmation of Croatia's readiness to enter the ERM2 and the Banking Union was the report the European Central Bank [ECB] issued last week saying that the top five Croatian banks passed the bank's comprehensive assessment and do not face any capital shortfalls," the government statement said. 

Croatia one of several countries from the Central and Southeast Europe region to issue “corona bonds” as they seek to cover spending on healthcare and stimulus packages while suffering a reduction in budget revenues during the lockdown. Such issues have generally been well received by international markets. 

International financial institutions (IFIs) forecast that Croatia will be among the worst-hit economies in the emerging Europe region as the pandemic devastates its large tourism sector. 

The World Bank’s June 2020 Global Economic Prospects report projected a 9.3% contraction this year, the deepest in the region. Similarly, the IMF anticipates a 9% contraction this year, while the European Bank for Reconstruction and Development (EBRD) is somewhat more optimistic, projecting a decline of 7.0%. 

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