Demand for Cyprus’ New 7-Year Bond Highest In Three Years

Demand from investors for Cyprus’ new 7-year bond issued last Tuesday, June 20 had been the highest since the country’s return to the international bond markets three years ago.

The transaction was dominated by strong international participation, the Public Debt Management Office said in a press release (PDMO). It noted that UK based investors accounted for 35% of the final allocations, followed by investors in Cyprus (19.5%), in Italy (15.5%), other European countries (13.5%), Germany, Austria and Switzerland (9.7%), US offshore (5.5%) and other countries (1%).

Bank treasuries / private banks and fund managers took up the lion’s share of final allocations, accounting for 35% and 33% respectively. Hedge funds accounted for 25%, followed by insurance and pension funds (5.1%) and Central Banks (1.8%).

The Republic of Cyprus successfully launched its first syndicated transaction of the year, pricing a new 850mn euro 7-year Reg S registered benchmark due 27 June 2024, the PDMO said. The bond has a coupon of 2.75 0% and was priced at 99.686%.

“Taking advantage of the stable market backdrop and the recent rating upgrades by both DBRS and S&P, the Republic of Cyprus launched a new 7-year benchmark transaction, due 27th June 2024, in conjunction with a switch offer of the 4.75% June 201 9, 4.625% February 2020 and 6.5 0% May 2020 bonds” the press release noted.

It said that “the purpose of offering the option to switch alongside the new issue was to give investors of the outstanding 2019 and 2020 bonds, the opportunity to switch some or all of their holdings into the new 7-year bonds, thus facilitating the extension of the Republic’s secondary curve while reducing the gross refinancing needs of the Republic of Cyprus in 2019 and 2020”.

Prior to the launch of the transaction, the Republic of Cyprus had conducted a global road show targeting investors in London, Frankfurt, Paris, Zurich, Munich and the US. Based on positive feedback received from investors, the issuer opted for the 7-year maturity.

According to the PDMO, the mandate for a new euro 7-year benchmark was officially announced to the market on Monday 19th June at 1510 CET. Initial price thoughts of reoffer yield of 3.000% area were released simultaneously, to gather indications of interest overnight.

On the back of the strong investor demand overnight with new issue interest reaching in excess of 1.9bn euro, books were officially opened on Tuesday, 20th June at 0915 CET, with a revised price guidance of 2.900% area, it said.

Demand continued to grow throughout the European morning, with strong interest from the international investor community, allowing the issuer to further tighten the yield by 10bps and set at 2.800%, thereby announcing closure of books for new issue accounts at 1130 CET and at 1225 CET for switch accounts, the press release added.

The PDMO noted that combined final demand of over 4.2bn euro represents the largest order book generated for a Republic of Cyprus benchmark transaction, since the sovereign’s return to the international bond markets in June 2014.

The accelerated switch tender format enabled Cyprus to size and price the new issue in real - time vs. tender & switch demand. Close to 560mn euro of new notes were switched among the outstanding June 2019, Feb 2020 and May 2020 investors, allowing the issuer to comfortably print 850mn euro, while extending their secondary curve.

The deal was priced at 1720 CET with a cash price of 99.686 % and a re-offer yield of 2.800%, thereby offering a new issue premium of 5bps over the interpolated secondary yield curve of the sovereign.

The success of this transaction highlights the strong support from the international investor base for the Republic of Cyprus Distribution Statistics, the press release said.