Background
Bond issue terms
Regional experience
Eurobond expectations
Comment
The issue of international bonds has been on the government's agenda since 2008. However, the project has repeatedly been postponed due to the financial crisis, first in the international market and then in the regional market.
In April 2010, following the approval of Law 10267/2010,(1) which ratified the agreement between the Albanian government, Deutsche Bank AG, London and JP Morgan Securities Ltd as joint managers for the issue of eurobonds, the eurobond launch was thought to be imminent. However, the Greek financial crisis led the Albanian government to postpone the issue until the end of October 2010.
Therefore, on October 28 2010 Albania entered the international capital markets by issuing its first eurobond, valued at €300 million. In a statement released by the Ministry of Finance, the eurobond issue was qualified as "a historical moment which has marked the commencement of a new era in Albanian public finance management".
Indeed, the timing was judged to be perfect by many capital market experts, who consider that the international market has now stabilised and is open to new issues.
The €300 million senior unsecured eurobond has been issued with a maturity of up to five years at an interest rate of 7.5%.(2) It is managed on behalf of the Republic of Albania by Deutsche Bank AG, London and JP Morgan Securities Ltd. Banks Alpha Bank, Intesa Sanpaolo Bank and the National Commercial Bank have been granted the status of co-managers due to their great support of the transaction.
In regard to credit rating, Moody's has awarded the eurobond a B1, while Standard & Poor's has assigned it a B+ long-term debt rating. In addition, Standard & Poor's assigned a recovery rating of 4 to the bond, indicating its expectation of a 30% to 50% recovery rate in the event of a default.
At €300 million, the Albanian bond is larger than any similar transactions from the country's neighbours, Macedonia and Montenegro. Nevertheless, both neighbouring countries have been assigned a higher credit rating than Albania.
In this regard, experts believe that although Albania was the only country in the region and one of the few countries in Europe to avoid a recession in 2010, the modest credit rating granted to Albania is mostly due to the Greek financial crisis. Indeed, Greece is one of Albania's closest trading partners.
The money raised from the eurobond will partly be used to refinance a €250 million syndicated loan taken out from 20 banks in 2010 by the government and managed by Deutsche Bank and Alpha Bank, at an interest rate of 13%. The loan was used to finance major infrastructure projects, such as the construction of the Durres-Kukes highway.
According to the Ministry of Finance, the debt restructuring will save the country around €7 million.
The rest of the income generated by the eurobond will go to finance the budget and capital expenditure.
According to the Ministry of Finance, to date more than 77 international financial institutions, based in more than 20 countries, have expressed their interest to purchase the eurobond.
However, although the sales will determine the success of the eurobond, the issue is a major step forward in the economic development of Albania and its integration into the European Union.
For further information on this topic please contact Selena Ymeri at Hoxha Memi & Hoxha by telephone (+355 4 2 27 4558), fax (+355 4 2 244 047) or email (selena.ymeri@hmh.al).
Endnotes