Armenia prepares for placement of third tranche of Eurobonds

ArmInfo.Armenia begins a preparatory process related to the placement of the third tranche of Eurobonds and the refinancing of debts on previously issued  securities. On July 4, the Government of Armenia approved the draft  decision "On establishing the specifics of organizing procedures for  the acquisition of services for the issue, placement and redemption  of Eurobonds."

To recall, 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. 

As Minister of Finance of Armenia Atom Janjughazyan stated,  presenting the draft decision, the new, third in a row, issue of  Eurobonds will take place before paying the debt on the first  tranche, which is scheduled for September 30, 2020.  The document  submitted for approval by the Cabinet of Ministers, as the minister  explained, will assist the proper organization of the redemption  process for the first tranche. In particular, the procedures for the  acquisition of services necessary for the implementation of the  refinancing process of Eurobonds, and attracting international  underwriters and legal advisers will be defined.

Thus, according to the chief financier of Armenia, after long  discussions of various scenarios, the Ministry of Finance came to the  conclusion that the best solution for refinancing debt in the first  tranche is to issue new Eurobonds. At the same time, according to  Janjughazyan, Armenia cannot boast of "extensive experience in this  field, and today it has only two tranches, the latter of them also  involved buying back the first issue of bonds." It is the lack of  practice, as the minister explained, that makes it necessary to  establish such adjustments. In the future, the Ministry of Finance  plans to give the issue a more fundamental solution.  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. The current average yield  is estimated at 3.97%.

According to the Head of the State Debt Management Department of the  Ministry of Finance Arshaluys Margaryan, 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.