Armenian government's decision to issue Eurobonds is a forced step containing great risks, economist says

27.01.2021 20:44
Armenian government's decision to issue Eurobonds is a forced step containing great risks, economist says

YEREVAN, January 27. /ARKA/. Armenian government's decision to place another issue of Eurobonds is a forced step that contains great risks, economist Tatul Manaseryan said in an interview with ARKA news agency.

According to Armenian media reports, the government is planning to place 10-year USD-denominated Eurobonds. The placement is to be handled by Citi, HSBC and J.P. Morgan. The reports were not yet officially confirmed by the Ministry of Finance.

“This is a forced decision. Obviously, there are no funds left in the budget, and taxes are not able to replenish the state treasury as much as  needed not only for financing the growing social needs, but also for the needs of defense and other things,” Manaseryan said.

To ground his argument, Manaseryan recalled the government's decision to use part of the money raised by Hayastan All-Armenian Fund without the permission of its Board of Trustees.

According to Manaseryan, the yield on the proposed notes may be high in order to attract investors, but in the future it will be difficult for the government to buy them back.

He noted that Eurobonds can be placed in Armenia, but sold to foreign companies or outside Armenia - to foreign residents, in both cases, in his words, the government  bears great responsibility.

“If we are thinking about attractiveness, then we must think about how expedient it is to sell bonds at high interest rates. I think that the interest rates will be relatively high, but this will already be a burden on the shoulders of the state and taxpayers,” Manaseryan said.

According to Manaseryan, confidence in Armenia is falling and there is a risk that the country will not be able to place Eurobonds.

“Confidence began falling in 2019 and  in 2020 due  to the pandemic, Armenia’s assessment and country rating also decreased, and especially after the Karabakh war. Many see Armenia as a country in the midst of an unfinished war and under the threat of a new one. So in such conditions investors prefer other securities than Armenian Eurobonds,” Manaseryan said.

“There was an attempt to issue domestic debt in the form of government bonds, but neither the private sector, nor the citizens showed any particular interest. Therefore, a second attempt has now been made to sell Eurobonds to foreigners, but how successful it will be is a big question. All this contains a big risk, including the buyback,” said Manaseryan.

Armenia first issued $ 700 million worth dollar-denominated bonds in September 2013 at the yield of 6.25 percent and a maturity of 7 years. The bulk of $700 million was used to repay a $ 500 million Russian loan ten years ahead of schedule.

The second issue was carried out in March 2015 in the amount of $ 500 million with a yield of 7.25% and a maturity period of 10 years. The third issue of USD-denominated 10-to-15-year Eurobonds was  in 2019 September.

Moody's Investors Service has assigned a rating of Ba3 to the proposed senior unsecured, US dollar-denominated notes to be issued by the government of Armenia. The proceeds of the notes will be applied toward general governmental purposes.

Moody's Investors Service said also that Armenia's Ba3 issuer rating is underpinned by its robust growth potential with increasingly diverse economic drivers and a lengthening track record of solid macroeconomic management, which raise the country's economic resiliency, and high debt affordability. -0-

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