Cyprus’ financial needs over the next three years are estimated at €3.1 billion signalling a new exodus into the markets.
The biggest need, €1.6 billion to be specific, is for 2022 (long-term maturities of €2.2 billion and a surplus of €600 million). Needs of €1 billion are estimated for 2020 (long-term maturities of €1.6 billion and a surplus of €600 million) and €500 million for 2021 (long-term maturities of €1.1 billion and a surplus of €600 million).
According to a Public Debt Administration Strategy announcement yesterday, the average cost of public debt has been steadily declining since 2012 which was at 4.2%. In 2013, it decreased to 3%, in 2014 to 2.6% and in 2019 to 2.2%.
In addition, following the island’s recovery in the ratings category in September 2018, some participation by central banks and government investment funds had been recorded in the issuance of Cypriot bonds.
Initial issuance attracted a higher share of hedge funds and a smaller share of banks and fund administrators. This distribution was reversed after the improvement of the country’s credit ratings. Investors and the total volume of bids have also increased steadily.
While there are increasing bids from investors that may not actually reflect the real market interest the positive trend is clear considering the number of investors involved in international bond issuance.
In May 2019, the bids for two debt issuance amounted to €6.3 billion with the number of investors standing at 294. PDAS also expects the duration of debt issuance to be chosen not to exceed 10% of GDP for the years up to 2030 and 9% of GDP for the years beyond 2030.
Although the investment base grows more and more, recent releases have shown that a volume of over 10% of GDP is feasible, but this cannot be reliably assured in the event of adverse market conditions.
Regarding potential actions, auctions of regular Treasury bills will be held following the publication of relevant auction calendars. The goal for 2020 is to maintain liquidity to meet the financial needs of the next nine months. The level of liquidity requirements will be reviewed for the years 2021-2022.