EBRD converts loan to Belgrade public transport company into local currency

By Svitlana  Pyrkalo
@pyrkalo


€15 million of the existing loan will be converted into Serbian dinars

The European Bank for Reconstruction and Development (EBRD) is converting €15 million of debt owed by the Belgrade Transport Company (GSP) into Serbian dinars.

This step will help reduce GSP’s currency risk by better matching its liabilities and assets.

It also promotes local currency lending, a key strategic objective of the Serbian government and the central bank.

This is the EBRD’s first direct loan in local currency in Serbia, made possible by its pioneering issue of dinar-denominated bonds in December last year, when it became the first multilateral lender to raise funds on the local market.

The €15 million of debt now being converted is part of a €65 million loan made by the EBRD to GSP in January 2013 to help the municipal company modernise its bus fleet and restructure its operations.

GSP purchased 200 low-floor, 18-metre articulated buses and since 2014 these have provided the city’s residents with more reliable and quality public transport services. GSP also acquired another 12 school midibuses to transport school children starting in September 2017.

The main benefit for GSP from the conversion to dinar is the mitigation of foreign exchange risk.

Daniel Berg, the EBRD Director for Serbia, said: “The EBRD is at the forefront of efforts to develop local currency and local capital markets in countries where it invests. This is our first such transaction in Serbia and it is an innovative way of supporting a long-standing client and contributing to the country’s macroeconomic and financial stability.”

Berg also noted that the EBRD is continuing its policy advisory work with GSP, which is designed to improve the company’s operational and financial performance.  “Our long-term objective is to help develop a well-managed company which provides high quality services but with much less need for ongoing budgetary support,” he explained.

Siniša Mali, Mayor of Belgrade, said: “I am very pleased with the agreement which has been reached today with the EBRD. Restructuring of our public finances and strong fiscal policy led during the last 3 years resulted in an improvement of the credit rating of the City of Belgrade. Today’s partial conversion of an EBRD loan to GSP from euros into the local currency has substantially contributed to reduction in risks related to additional foreign currency exchange costs. This is an important step for us which will positively affect the financial picture of the capital.”

Željko Milković, General Manager of GSP, added: “At GSP, our revenues are in dinars and repaying the EBRD loan in the same currency will help us avoid being exposed to the fluctuations of the exchange rate. It will have a positive impact on the company’s financial health and operational efficiency and will help further improve services for the benefit of Belgrade residents.”

By providing local currency funding, the EBRD is helping to increase the resilience of the Serbian economy and to better protect it from future shocks. The EBRD invests according to six key transition qualities which it believes equips its countries to most effectively deal with 21st century challenges; by making their economies more competitive, inclusivewell-governedgreenresilient and integrated.

To date, the EBRD has invested nearly €4.5 billion in a variety of sectors of the Serbian economy, and its work focuses particularly on enhancing the competitiveness of the private sector and developing sustainable and efficient public utilities.