According to the Ministry of Finance, funds mobilized by the issue of Eurobonds, was used for: (i) to repay the Credit Union of 2009, which is considered expensive and (ii) to finance public investment.
Credit Union was taken by the Albanian government in 2009, which was a very difficult year for international capital markets due to financial crisis. This crisis caused the lack of liquidity and credit restrictions by the government, which made the borrowing process more difficult, as in the internal and that of external markets as well. For this reason the Ministry of Finance reached an agreement with a group of international banks for a syndicated loan at the amount of 196.4 million euros. Since this loan was negotiated in such a situation of crisis, it was quite expensive for the Albanian government.
Thus, the interest rate based on Euribor Index (which is taken as a reference index for loans in euros), which was compounded by a margin of 9.65%. Currently this index is listed at the level of 1.42%, which means that the interest rate for the Credit Union today would be in figures 11.07% / year (1.42% + 9.65%). Meanwhile during the year 2009, EURIBOR index was above 2.5%, which means that the credit union at the time of signing was very expensive.
Meanwhile, Eurobond has an interest rate of 7.50% / year, or 3.57% less per year than the Credit Union. In other words, the annual cost of syndicated loan today would be 21,741,480 Euros, while the cost of Eurobonds is only 14,737,500. The difference between them is 7,003,980, which means that if today the Albanian government will continue to hold Union Loan in its debt portfolio would pay about 7 million more per year interest.
The following chart represents significant differences between these two instruments in terms of their costs.
Source Ministry of Finance, http://www.euribor-rates.eu/
Analysis and Comments: Open Data Albania (ODA)
By comparing the cost of debt for these two instruments we clearly distinguish the advantage of Eurobonds as a cheaper instrument. If we take into consideration even the longer maturity that Eurobond offer (as a 5-year-old instrument) versus the syndicated loan (as a 3-year-old instrument), we come to the conclusion that the Albanian government won a few years to repay the debt. The substitution of an expensive debt with cheaper debt is a strategy that results in cost savings and reduces the overall public debt of the government.
All the informations is presented in the following dynamic table:
Source Ministry of Finance, http://www.euribor-rates.eu/
Analysis and Comments: Open Data Albania (ODA)
* Eurobond’s amount is 300 milion Euro, but only 196,5 milions were used to repay the syndicated Loan
** Interest rate for the syndicated Loan is composed by the Euribor + of 2% margin. The below data for Euribor belongs to 30 Janary 2012