First international Estonian bond issue to start

  • 2002-06-06
  • Kairi Kurm

Estonia will for the first time issue international government bonds worth 100 million euros ($94.34 million) and with a maturity of five years at the end of June.

The issue to European inves-tors will provide a benchmark for Estonian banks, businesses and municipalities in assessing interest rates when they borrow on international markets, said Mar-gus Uudam, deputy state secretary at the Ministry of Finance.

"It provides a good benchmark and helps the government cut spending on paying interest," said Uudam.

The conditions of the issue will be introduced to European inves-tors at a road show which visits London on June 11 and Frankfurt on June 12. Offers can be made until around June 20.

The final interest rate payable by Estonia will be settled during the road show when interested buyers have announced their offers.

The issue is being handled by Credit Suisse First Boston, which will receive up to 0.2 percent of the total volume of the issue.

The Estonian government will spend the money from the issue mainly on refinancing loans taken from development banks and on a new NATO compatible air surveillance radar, said Uudam.

Allan Marnot, head of Hansapank's fixed income and derivatives department, estimated the annual interest payable might be between 5.17 percent and 5.35 percent. Estonian legislation stipulates that it may not exceed 6 percent.

"Estonia's credit conditions are as good as those of the best Central European countries such as the Czech Republic and Hungary," said Marnot, adding that demand for the bonds was likely to be strong.

Although the issue is likely to be a success, nothing is certain, cautioned Marton.

"It may sometimes turn out just the opposite. Hansapank for example had an experience in 1998, when during a meeting with investors news broke out that Russia was not paying its debts."

Some government members have previously opposed issuing government bonds, seeing such a move as damaging to Estonia's reputation for fiscal prudence.

But Uudam dismissed such fears. "Estonia has always had the opportunity to borrow money from international markets. There is a certain political commitment not to let the state budget fall into deficit and keep a low state burden."

Marnot also downplayed any danger to Estonia's reputation. "Borrowing money from international capital markets is not more risky than borrowing from such international development banks as the European Bank for Reconstruction and Development or the World Bank," he said.

"A state bond issue would simplify the process," said Marnot.

Lithuania has conducted eight government bond issues in U.S. dollars, Deutsche marks and euros. Estonian companies and banks have also issued bonds on international markets.