Lithuania issues 500 million euro bond

  • 2009-06-18
VILNIUS - Lithuania has raised 500 million euros in a Eurobond issue that matures in 2014 in an effort to help plug the budget deficit, which the Cabinet expects to be around 5 percent of Gross Domestic Product (GDP) at the end of the year.
"The successful launch of our securities shows investors' confidence in Lithuania ... following recent gloomy forecasts for the Baltic region and prevailing negative news in the market," Lithuanian Finance Minister Algirdas Semeta said.

The ministry said in a statement released late on June 15 the 500 million euro issue had a yield of an annual 9.38 percent.
"The situation in financial markets has not stabilized yet, and investors demand quite high yields, but the fact of the issue is a very positive sign, both for us, and for other Eastern and Central European states," Semeta added.

"There was strong action from American accounts 's the largest part of the allocation, then German and U.K. accounts. Also Scandinavian accounts 's we are pleased that they are demonstrating confidence in the country," Mikolas Majauskas, the prime minister's advisor on economic concerns, told The Baltic Times.
The bond issue was in place of the one last year that Lithuania had to delay due to the financial crisis.
Majauskas said the money would be used for general purposes.
"This is going to be used for general government finances 's this is not ring fenced for specific things 's it will be used to finance our expenditures and the payments of salaries. This means we can finance the deficit."

Senior economist at SEB Bankas Nerijus Udrenas said the money might not be enough.
"This is a positive event and this will stabilize in the short term 's it shows credibility in the international markets, but hopefully the government will keep looking for ways to save further because it is expensive [to borrow]," he said.
"It won't increase debt too high 's the level is below 20 percent of GDP, which is not big, but this may soon exceed it."

He said that the budget deficit could rise as much as 9 percent, higher than the forecast 5 percent.
"The budget deficit for the first four months of the year was already 3 percent of GDP 's to extrapolate for the whole year, it could be 9 percent. The 2 billion litas cuts made earlier were good, but the budget deficit is still about 5 percent."
Majauskas said the Eurobond, coupled with the recent investment decision from Barclays bank (see story Page 6), is a good sign for the country.

"This is a very strong statement for a global investment community confidence in Lithuania 's we have seen people from all over the world in this. At the same time we have Barclays. We have equity and debt capital 's it shows strong trust and it shows good news. We are very proud of this," he said.
The situation has not been as rosy for Latvia, which took a loan for 7.5 billion euros from the International Monetary Fund and the European Union.
The country has been forced to make extreme budget cuts (see story Page 3) in order to ensure another tranche of loans this month or the next.

The Eurobond may mean Lithuania doesn't have to follow in Latvia's footsteps.
"In a positive case scenario, the [Lithuanian] government can avoid approaching the IMF," Udrenas said.