Bond issue pays back IMF in full

Dec 12, 2012
From wire reports

RIGA - Latvia successfully issued seven-year government bonds, raising $1.25 billion on Dec. 5, reports LETA. The annual interest rate on the bonds was set at 2.75 percent; the rate of return is 2.889 percent - the lowest interest rate ever on Latvia’s borrowings on the international financial markets, said the Finance Ministry.

The bond issue was organized in accordance with the government’s borrowing strategy and takes into account the especially favorable situation on the foreign markets at the moment. Investor interest in the bonds was substantial, and the bonds were sold to investors from Europe, the United States, and other regions.
The bond issue was managed by Barclays, Deutsche Bank and JP Morgan.

Finance Minister Andris Vilks says he is pleased at the success of the bond issue. “As Latvia’s credit ratings improve, we have a unique opportunity to refinance our external debt on international financial markets, at an interest rate lower than that at which we borrowed from the European Commission during the international loan program,” said the minister.

As a result, the cost of servicing the state debt will drop in the medium term, said Vilks. “The successful bond issue clearly shows foreign investors’ appreciation of what has been achieved in the Latvian economy,” he added.
This past February Latvia raised $1 billion in a five-year bond issue. The annual interest rate of 5.25 percent was higher than the government had originally planned; the rate of return was 5.375 percent, said the Finance Ministry.

Rebuffing the smarty-pants
Latvia has reached agreement with the International Monetary Fund on the repayment of the entire loan borrowed from the IMF before its due date. Full repayment is set for this year.
The remaining amount that Latvia has to return to the IMF is SDR (special drawing rights) 603.038 million, or 503.54 million lats (719.2 million euros).

“By the successful government bond issue on the international financial markets, and with the historically-lowest interest rate, Latvia can take the next step and repay the entire IMF loan before its term. This is an important milestone for the entire Latvian economy as well as for foreign investors, because by this Latvia confirms its ability to keep its finances in check. As a result of the deal, Latvia will save several million lats that will not have to be spent in interest payments, but could be invested in the development of the country,” said Finance Minister Vilks.

In an entry on his Twitter account, the minister added: “Just a while ago, there were many smarty-pants claiming that Latvia would have to carry on with the IMF loan program for years, or even that Latvia would not be able to repay the loan.” The minister also thanked the IMF for supporting Latvia when the country fell on hard times.
The IMF loan will be repaid using the money that was raised through the Dec. 5 bond issue.

Altogether, Latvia borrowed SDR 982.24 million from the IMF. The total amount available from the international bailout loan program was 7.5 billion euros. Latvia ended up using only 4.5 billion euros of this.

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