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.