Thursday, February 7 2019 13:01

ArmInfo.In 2019, Armenia will pay about 356.9 billion drams ($ 733 million) to repay and service the government debt, which at the end of 2018 amounted to $ 6,372.9  million.  The Department of Public Debt Management of the Ministry of  Finance of the Republic of Armenia reported this to ArmInfo  correspondent.

In particular, of the 356.9 billion drams, 198.9 billion drams will  be allocated to pay off the principal amount of the debt (85.2  billion drams of foreign debt and 113.7 billion drams - the domestic  one), and 158 billion drams to pay interest payments.

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As noted in the department, if from 2009 to 2016, 4.2% of the state  treasury expenses on average were allocated to pay interest payments,  in 2017 the figure rose to 8.1%, and this year it will be 9.6 % Of  these, 89.2 billion drams will cover interest payments on foreign  debt and 68.8 billion drams - on internal debt.

In 2018, 139 billion drams were allocated for the payment of interest  payments (instead of the actual 122.1 billion drams for 2017),  namely, 75 billion drams in foreign debt, and 64 billion drams in  domestic debt.

The largest external creditors of Armenia are the World Bank (WB)  represented by the International Development Association (IDA), which  accounts for 25.9% of foreign loans and another member of the WB  Group - International Bank for Reconstruction and Development (IBRD)  - 16.5%. On the list of major lenders is also the Asian Development  Bank (ADB) with 17.1% and the Eurasian Development Bank (EDB) - 7.4%.  Among the creditor countries, Russia is leading - 7.6%, Japan - 5.6%  and Germany - 5.1% and France - 3.1%, while China and the USA  credited Armenia in the amount of 0.5% and 0.4% respectively.

The zero hour

According to the schedule of repayment of government debt until 2054,  2020s and 2025s will be the most peak in servicing the public debt.  In 2020, Armenia will have to "fork over" about 417 billion drams or  $ 857 million (the estimated exchange rate of the Armenian dram  against the dollar $ 1 = 486.55 drams) to repay the principal amount  on all government debt generated at the end of December 2018, and in  2025 issue price will be about 406 billion drams ($ 834 million). In  both cases, the redemption of Eurobonds is $ 500 million of this  amount. Thus, as experts say, in 2020, before the next payment on the  debt, Armenia will decide on the next and already third issue of  Eurobonds.

Armenian debts increase in price

Today, Armenia has carried out two issues of Eurobonds. The first  issue was made on September 19, 2013, and $ 700 million worth of  Eurobonds were issued with a maturity of 7 years, until September 30,  2020.  The yield on placement was 6.25%. Due to them the government  ahead of schedule repaid a loan taken from Russia in the amount of $  500 million.

The main underwriters were Deutsche Bank AG, London Branch, HSBC Bank  plc and J.P.Morgan Securities plc. As of January 31, 2019, the yield  on Armenian Eurobonds for the first tranche fell to 4.39%.

The second tranche of sovereign bonds in the amount of $ 500 million  for a period of 10 years and with a yield of 7.5% was implemented by  Armenia on March 19, 2015. Proceeds from the second issue of  Eurobonds amounted to $ 488 million. A part of the amount received  from the sale of these bonds in the amount of $ 200 million were used  to redeem the first issue of bonds maturing in 2020. The remaining  amount was transferred to a single treasury account of Armenia and  sent to the budget system of the country. As of January 31, 2019,  their current yield is estimated at 5.46%.

According to the Head of the State Debt Management Department of the  Ministry of Finance Arshaluys Margaryan, the new, third in a row,  issue of Eurobonds will take place before paying the debt on the  first tranche scheduled for September 30, 2020. According to  Margaryan, the volume of the issue will be similar to the amount that  will be sent to repay the debt on Eurobonds - $ 500 million. Armenia  will send another $ 33 million to pay coupons on Eurobonds in March  and September 2020.

At the same time, the next placement of Eurobonds for the Ministry of  Finance is not an end in itself.  Before making such a decision, the  potential of the domestic capital market and the prospects for  raising funds from external sources will be examined. After making a  decision on the new issue, the Ministry of Finance will invite  potential investors and present the real situation in Armenia. The  latter, on the basis of their business preferences, will decide on  the appropriateness of replenishing investment portfolios with  Armenian sovereign bonds. According to experts, in the worst case  scenario, the yield on placement will be 8-8.5% per annum, but  financial authorities hope for  7-7.5% or less.