2.5 billion dinar issue was underwritten by Raiffeisen Banka Beograd. Funds will be used to provide financing for real economy
The European Bank for Reconstruction and Development (EBRD) has taken an important step to strengthen the Serbian capital market with the first issue of a supranational bond in Serbian dinars that will also increase the Bank’s ability to lend to the Serbian economy in the local currency and thus contribute to dinarisation of Serbian finance.
The EBRD is the first multilateral lender to raise funds on the local market in dinars. It will be able to lend the proceeds from the 2.5 billion-dinar bond to domestic borrowers who can take on the debt without fear of foreign exchange risk.
This first bond from the EBRD in the Serbian currency is a three-year floating-rate issue that pays interest at the three-month Belgrade Interbank Offered Rate (Belibor) plus 0.4 per cent. The bonds are governed by Serbian legislation and will be traded on the Belgrade Stock Exchange. The issue was underwritten by Raiffeisen Banka Beograd. Citigroup acted as marketing agent.
With more than 70 per cent of its borrowing in foreign currencies, mostly in the euro, Serbia has one of the highest levels of foreign currency borrowing among all of the countries in the EBRD regions. This exposes unhedged borrowers to significant exchange rate risks. The dinar bond, which will allow the EBRD to lend in dinars to domestic borrowers, is in line with the efforts of the National Bank of Serbia to tackle the high levels of euroisation and increase the availability of dinar financing (dinarisation).
Isabelle Laurent, the EBRD’s Head of Funding, said: “This milestone for the market in Serbia is a continuation of the EBRD’s efforts to reduce dependence on foreign currency borrowing in the countries where we work and to encourage people to raise finance in local currency.”
The EBRD has issued bonds and lent in local currency in a number of domestic markets, including Armenia, Georgia, Hungary, Kazakhstan, Romania and Russia. Local currency and local capital market development are among the EBRD’s priorities, as an integral part of building resilient, integrated economies, ready to withstand global challenges.
Issuing this dinar bond in Serbia was the culmination of work over the last decade with the regulatory authorities in the country, especially the Ministry of Finance and the National Bank of Serbia, to amend legislation and regulations, as well as with the guidance of the Securities Commission, Ms Laurent said.
The EBRD’s Director for Serbia, Dan Berg, said: “We aim to use the dinar issuance to provide financing for the real economy including small and medium-sized enterprises and municipalities whose revenues and expenditures are primarily in dinars. We will help remove exchange rate risks from their balance sheets. We expect to expand dinar lending activities in the coming years in response to borrowers' needs and hopefully help them to change ingrained habits of borrowing and saving in euros.”
The environment for borrowing in dinars had improved significantly due to National Bank of Serbia and government policies that have successfully lowered the level of domestic interest rates, making local borrowing a more attractive proposition than had previously been the case, Mr Berg added.
Zoran Petrović, CEO of Raiffeisen Banka, commented: “We are very proud to have been part of this, in many ways historic, transaction, in the financial markets of Serbia. Raiffeisen Banka will continue to set trends and new business standards with its innovative approach. We especially value our participation in transactions like these where the highest international business standards are applied in the local market, which further develops the capital market and dinarisation of the financial system.”