Montenegro’s government has raised $750 million by issuing state bonds on the international market, with a fixed interest rate of 5.88%. The effective interest rate for the issued bonds is 7.25%.
Finance Minister Novica Vuković announced that the bond issuance received support from over 200 global investors, demonstrating long-term confidence in Montenegro. The demand reached €4.7 billion, exceeding the required amount more than six times.
Vuković emphasized that the country took on this debt solely to repay old obligations and maintain public finances.
“The Ministry of Finance has just completed the issuance of $750 million in bonds with a maturity of seven years. The loan was primarily necessary for servicing old debts from the previous period, which are due for repayment this and next year,” stated Finance Minister Novica Vuković.
He clarified that the borrowing was not for administrative expenses but to fulfill the country’s earlier commitments that must be regularly settled. This approach, he added, responsibly safeguards the state budget, the budget of all citizens, and the taxpayers of Montenegro.
“We follow a responsible public finance policy – we fund expenditure from revenue, regularly servicing all obligations such as salaries, social benefits, pensions, and more. We have also increased pensions to €450 from our own funds, without the need for additional borrowing,” Vuković emphasized.
He ruled out any connection between the current loan and the anticipated improvement in living standards, including the announced salary increases.
Additionally, Vuković assured that there were no hidden actions, and the bond issuance adhered to the Budget Law and the Decision on Borrowing for 2024. The government’s borrowing capacity for this year is set at €1.15 billion, covering the shortfall, refinancing old debt, financing the capital budget, and creating a fiscal reserve for the next year.
According to the Ministry of Finance’s projections, the total repayment of debt in 2024 is estimated at €656.7 million, with principal repayment at €518.63 million and interest repayment at €138.07 million.
Vuković stressed that issuing state bonds is a transparent means of borrowing and actively traded on the international capital market. Montenegro already has three issuances of Euro-denominated state bonds but conducted its first issuance in U.S. dollars while simultaneously protecting against currency risk.
“This issuance of dollar-denominated bonds, maturing in 2031, was conducted with a parallel euro currency hedge under international documentation called ISDA. This is a standard practice recorded in the experiences of other countries in the broader region, such as Hungary, Poland, Romania, Slovenia, Croatia, and Serbia,” explained the Finance Minister.
Moreover, the issuance featured a fixed interest rate in euros at 5.88%, compared to the previous yield of 6.5% on the secondary market for existing bonds. Currently, it stands below 2% compared to the current level of the six-month Euribor.
To mitigate currency risk, a cross-currency swap transaction was necessary, following international ISDA documentation.
Vuković emphasized that this dollar issuance attracted new investors who had not previously invested in Montenegro’s state bonds, providing savings of approximately €35 million compared to a direct Euro issuance.
He provided insights into the meticulous process of bond issuance, which includes the preparation of a Prospectus, a document covering all parameters related to the political, social, and economic aspects of the issuing country. The Prospectus becomes publicly available after approval from reputable international legal firms representing the country and the banks arranging the bonds.
The Finance Minister explained that a certain level of confidentiality is essential during the bond preparation process, as premature disclosure can impact the secondary market for previously issued bonds and potentially harm the country’s negotiating position for a new interest rate.
Addressing media speculation and analyst predictions before the bond issuance, Vuković criticized them for their lack of responsible approach to such a crucial matter for overall fiscal stability.
The market entry occurred on March 6 at 6:00 PM, chosen as the most favorable moment following an analysis that started after Montenegro’s delegation participated in the January Euromoney international conference in Vienna. The delegation presented the strategic priorities of the 44th Government to major global investors during this event.
In February, arranging banks were selected, and the preparation process for the bond issuance commenced, involving weeks of communication, market analysis, Prospectus updates, and due diligence with the presence of international and domestic legal advisors.
The official announcement on March 4 adhered to international standards, inviting investors to consider investing in Montenegro’s inaugural dollar-denominated bond. A global investment call was made, attended by around 100 investors worldwide, followed by a two-day roadshow on March 4 and 5, where the delegation from the Ministry of Finance and the Central Bank presented Montenegro’s political, social, and economic parameters to international investors.
Vuković concluded by reaffirming that the government and the Ministry of Finance acted in accordance with the current Budget Law and the Borrowing Decision during the preparation and realization of the bond issuance.
