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Emerging Markets, EBRD editions, May 15 2014

Montenegro succeeded in raising Eu280 million in five-year bonds from the international debt markets yesterday in a transaction showing that southeastern European credits are not being impeded by events further east in Ukraine.

The small Balkan sovereign raised just under Eu200 million of the funds in new money, and a further just over Eu80 million from an exchange of existing 2015 and 2016 bonds.  The deal priced at 5.5%, the tight end of final guidance. Citigroup, Deutsche Bank and Erste Bank were the lead managers on the deal.

Though rarely seen in big institutional portfolios, the country did find a convincing story to tell. “What came across on the road was the tourism angle in particular,” said someone close to the deal. The country is increasingly marketing itself as the next Croatia, given that it has similar Adriatic coast. “Compared to some others they are a smaller service-oriented economy, but they provide a stable political environment which certainly allows for the EU accession process. In 2013 the government deficit was about 2.6%, so the fiscal picture is very much in check as well.” Montenegro uses the euro as its currency despite not yet being a member of the EU.

“They’re a small name, but some institutional funds did recognize that a smaller economy next to Croatia and Serbia provided diversification opportunities,” one banker said.


Simon Quijano-Evans, head of EM research at Commerzbank, said the bond should be seen in the context of growing EU interaction. “The European Union will be doing all it can to attract the former Yugoslav countries into the EU in the next few years,” he said. “Following what happened with the EU elections in Serbia,” in which pro-European Aleksandar Vucic won a landslide victory in March, “there is a strong desire to move along that path and it has positive implications for all the countries in the region, whether it’s Bosnia, Kosovo or Montenegro.


“There will be more support for all these sovereigns to come to market in the next one to two years, partly because of their scarcity value and partly because of implicit support from the European Union, all the more so given what is happening in Ukraine.”


Zeynep Kerimoglu, in debt syndicate at Citi, said there was limited new issuance activity from the region after a very busy start to 2014. “There has already been a fairly healthy supply from CEEMEA sovereigns,” she said. “As the year continues there will be conversations around what is left to do, and I wouldn’t rule out further supply.”


Slovenia has already raised more than Eu4.5 billion equivalent this year. Croatia is rumoured to be planning a Eurobond.


As for the uncertainty in Ukraine, she said it made no difference to marketing the deal. “In terms of general market tone it is something that we monitor, but we haven’t seen it impact demand for new issues whatsoever, certainly not in Montenegro.”


Chris Wright
Chris Wright
Chris is a journalist specialising in business and financial journalism across Asia, Australia and the Middle East. He is Asia editor for Euromoney magazine and has written for publications including the Financial Times, Institutional Investor, Forbes, Asiamoney, the Australian Financial Review, Discovery Channel Magazine, Qantas: The Australian Way and BRW. He is the author of No More Worlds to Conquer, published by HarperCollins.

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