Georgia targets at new Eurobonds emission
24 February, 2011
Georgia targets at new Eurobonds emission

Georgia aims at its second Eurobond emission this year. Government finds it good for the country’s international image. Some economic analysts think the second emission is reasonable only to cover the first emission.
Gross external debt of Georgia, which goes above USD 9. 379 billion [out of which USD 4 billion is the state debt] is supposed to grow at least by USD 500 million this year. Georgian government has resolved to issue the second sovereign Eurobonds by the end

of the year, Kakha Baindurashvili, Minister of Finances said on February 7, 2011. According to him, maturity period of the new loan is to be extended to 7-10 years [unlike the five-year USD 500 million-worth Eurobonds taken under 7.5% of interest rate in 2008].
Baindurashvili did not elaborate the volume of the second Eurobond emission but economic analysts suppose that most probably, it will not be less than USD 500 million as far as the new loan apparently must cover the old one and extend complete payment by 7-10 years.
According to Shota  Murghulia, economic analyst with the Center for Economic Problems Research (CEPR), emission of the second Eurobonds  is the only way to pay-off the first emission  that should be cleared  by 2013. The thing is that the total volume Georgian state budget has to pay for Eurobonds alone in 2013 makes more than GEL 800 million. Besides the state has other outstanding liabilities to cover in 2013 that put together with Eurobonds exceeds GEL 1 billion. And disbursing such a big chunk of yet meager state budget [it totals about GEL 7 billion this year] on paying off financial liabilities alone within a year seems impossible to the country.
That’s why Murghulia finds reasonable to take new loan this year under lower interest rate to insure smoother payment of all due liabilities till 2013.
Baindurashvili asserts meanwhile that state budget is pretty able to cover the USD 500 million Eurobond obligation even today and new Eurobond is to be taken for raising awareness of the country at international market that can give an impetus to commercial sector of the country that may have better credit access as a result.
“Euro-bonds amount to only 10% of our foreign portfolio and it shall be covered by 2013,” he said. “This increases the annual debt service in regard to budget expenses up to 19%, and in regard to exports – up to 11%. This will only apply if our country chooses not to issue new Euro-bonds; and our strategy is to issue new Euro-bonds, because here we are not talking about budget incomes, but the existence of a benchmark. Our goal is to extend its maturity from 5 to 7 or 10 years, which will help to attract more long-term resources and investments in the commercial sector in the future. Taking this into account, naturally, the country will have absolutely no net expense for covering the Euro-bonds. Even without issuing new Euro-bonds, Georgia is ready, even at this very moment, to completely cover Euro-bonds from the government’s free deposits.”
Murghulia wonders of what free resources Baindurashvili speaks when the state budget has a GEL 500 million deficit this year that means that government has to find either new loans or grants to fill this gap. On the other hand payment of Eurobonds is not built in the state budget and if government really decides to pay it off today it means that no pensions will be delivered in coming months.
Murghulia questions reasonability of a new loan if it is not aimed at coverage the old Eurobonds. He believes that enhancing foreign liabilities [that already makes more than 38% of GDP] with no clear purpose and economic calculations [that the finance minister has not presented as of yet] where the new loan will be invested and what economic benefit will be given is extremely unwise. And argumentation that Georgia may improve its image at international financial market and banks enjoy more credits seems unserious to Murghulia because big foreign debt is no attractive image to investors.
“Nobody provided us with clear calculations what economic benefit we took from the first Eurobond emission that was extremely unreasonable in 2008 when we had a surplus in the state budget and led to burdensome expenses now when we have a deficit. Nobody can say for sure whether  banks really enjoyed better credit access at international market or we had any other benefit thanks to old debt. The fact is that economic growth reduced to 2% in 2008 and slumped by 4% in 2009 and banks faced credit crunch rather than relief,” Murghulia told Georgian Journal.
Levan Surguladze, Head of Caucasus Financial Service, approves governmental initiative to issue Eurobonds to keep a benchmark at international market. 
“USD 500 million is not such a catastrophic sum in fact for Georgian state loan portfolio consists of “easier” long-term loans of international organizations fixing low interest rates and the single difficulty  is the USD 500 million. But the second emission will be much easier than the first one and it definitely gives an impetus to banks,” he explained to GJ.

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