Montenegro achieved a successful fundraising effort by issuing $750 million in bonds on the international market. The bonds, with a maturity period of 7 years and an annual interest rate of 7.25%, garnered support from over 200 global investors. This marks Montenegro’s inaugural venture into dollar-denominated bonds, attracting new investors and resulting in approximately 0.65% in savings compared to a direct issuance in euros.
The details of the bond issuance results were outlined in a report on the transaction and cross-currency swap activities for 2024, which received approval from the government at its latest session.
Collaborating with four esteemed banks—Bank of America, Citi Group, Erste Bank, Societe Generale Bank—and the legal firm Linklaters, the Ministry of Finance initiated the bond issuance on March 4th, based on the Country Document (Prospectus).
To ensure the transaction’s success, a series of meetings were conducted during the roadshow on March 4th and 5th. The roadshow, conducted online via video calls, aimed to introduce the upcoming bond issuance, provide insights into the country’s economic situation, and gauge investor interest under specified conditions.
The roadshow included the participation of the Minister of Finance, his team, and representatives from the Central Bank of Montenegro.
“This marks the first dollar-denominated bond that has simultaneously broadened our investor base. In a move to mitigate currency risk, a hedging transaction through a cross-currency swap was also necessary, following international ISDA documentation,” explained the report.
The bond issuance transaction on the international market was successfully completed on March 6, 2024, with an initial price of 7.75%. Over 200 global investors expressed long-term confidence in Montenegro, resulting in a demand exceeding $4.7 billion, over six times the required amount. The Ministry of Finance managed to influence a reduction in the interest rate, offering a range from 7.375% to 7.25%, representing a 50 basis points reduction. The final issuance amounted to $750 million with a maturity of seven years and an annual interest rate of 7.25%.
Regarding the investor structure by region, the most represented were investors from the United States at 47%, followed by the United Kingdom at 29%, Continental Europe at 22%, and the remaining 2% from the rest of the world. Investment funds were the predominant sector of business for investors, accounting for 92%, followed by banks at 4%, and pension funds and insurance at 3%.
On the same day as the bond issuance, a cross-currency swap transaction was completed, converting the total dollar amount of the bonds, $750 million, at the determined EUR/USD exchange rate of 1.0905 and an average interest rate of 5.88%.
After the conversion, the total amount secured through the issuance, or after the hedging transaction, amounted to €687.76 million. The transaction has a seven-year term, aligning with the bond maturity, with a mandatory revision clause after 3.5 years.
The document emphasizes that issuing dollar-denominated bonds, maturing in 2031, was done with parallel hedging in euros according to international ISDA documentation. This practice is standard and has been observed in other countries in the broader region with similar experiences.
Montenegro converts its dollar debt into euros, paying investors the identical dollar element received through the cross-currency swap while servicing only the euro debt at an interest rate of 5.88%.
The final document versions, including the Country Document (Prospectus) and General Bonds (Global Notes), were completed by the Ministry of Finance in collaboration with banks and legal advisors. These documents, along with other necessary documents for transaction realization, were approved by the government on March 1, 2024.
In terms of the bond issuance documents, the final versions include information on the bond principal amount ($750,000,000.00), interest rate (7.25%), payable every March 12 and September 12 starting from September 2024 until the maturity date on March 12, 2031. The conditions of the concluded cross-currency swap transaction are contained in Confirmations of the Content of the Transaction, individually contracted and signed by the Ministry of Finance with each bank.
The funds raised through the issuance will be used to repay old debts due this and next year, along with creating a fiscal reserve for 2025.
It’s important to note that, according to the projections of the Ministry of Finance, the total debt repayment for 2024 is projected at €656.7 million, with principal repayment accounting for €518.63 million and interest repayment for €138.07 million.
