Montenegro €280m bond deal throws spotlight on Balkans
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Emerging Markets

Montenegro €280m bond deal throws spotlight on Balkans

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Following the success of Montenegro’s €280m five year bond, conditions are ripe for other Balkan and central European sovereigns to tap the market

Montenegro shrugged off fears of the Ukraine crisis spreading, pricing a successful €280bn five year bond on Tuesday, with the southeastern European sovereign tapping into the strong investor interest seen this year for central European borrowers.

The small Balkan country raised just under €200m of the funds in new money, and a further €80m from an

exchange of existing 2015 and 2016 bonds. The deal was priced at 5.5%, the tight end of final guidance. Citigroup, Deutsche Bank and Erste Bank were the lead managers on the deal.

Though rarely seen in big institutional portfolios, the country did find a convincing story to tell. “What came across on the road was the tourism angle in particular,” said a banker close to the deal.

The country is increasingly marketing itself as the next Croatia, given that it also has an Adriatic coastline. “Compared to some others they are a smaller service-oriented economy, but they provide a stable political environment which certainly allows for the EU accession process. In 2013 the government deficit was about 2.6%, so the fiscal picture is very much in check as well,” said the banker. Montenegro uses the euro as its currency despite not yet being a member of the EU.

“They’re a small name, but some institutional funds did recognise that a smaller economy next to Croatia and Serbia provided diversification opportunities,” another banker said.

Simon Quijano-Evans, head of EM research at Commerzbank, said the bond should be seen in the context of growing European Union interaction. “The European Union will be doing all it can to attract the former Yugoslav countries into the EU in the next few years,” he said.

“Following what happened with the EU elections in Serbia,” in which pro-European Aleksandar Vucic won a landslide victory in March, “there is a strong desire to move along that path and it has positive implications for all the countries in the region, whether it’s Bosnia, Kosovo or Montenegro.

“There will be more support for all these sovereigns to come to market in the next one to two years, partly because of their scarcity value and partly because of implicit support from the EU, all the more so given what is happening in Ukraine.”

Zeynep Kerimoglu, director of fixed income syndicate at Citi, said there was limited new issuance activity from the region after a very busy start to 2014. “There has already been a fairly healthy supply from CEEMEA sovereigns,” she said. “As the year continues there will be conversations around what is left to do, and I wouldn’t rule out further supply.”

Slovenia has already raised more than €4.5bn equivalent this year. Croatia is rumoured to be planning a Eurobond. As for the uncertainty in Ukraine, she said it made no difference to marketing the deal. “In terms of general market tone it is something that we monitor, but we haven’t seen it impact demand for new issues whatsoever, certainly not in Montenegro.”

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