Oct. 20 (Bloomberg) -- The U.S. Agency for International Development will guarantee part of 35 million euros ($48.27 million) in debt issued by Novi Sad, Serbia’s second-biggest city, the first municipal bond issuance in the country.
USAID signed a bond-guarantee agreement with Novi Sad officials today for a 6 million-euro ($8.27 million) tranche as the northern city seeks funds for road construction and a wastewater project, Michael Metzler, deputy director of the USAID Economic Growth Office, said in a phone interview.
“It’s not something we usually do, but we’re providing the backing for demonstration effect to facilitate the breakthrough” of the first municipal bonds in the Balkan country, Metzler said. In case of default, the agency will cover 50 percent of the 6 million-euro portion, he said.
The sale of 12-year bonds is being organized by the local unit of UniCredit SpA which last week found buyers for 15 million euros of the unsecured portion and is in talks for another 13 million euros, Metzler said. The 6 million-euro portion with the USAID backing will be offered last, he said. The main targets are insurers and pension funds.
“This bond placement represents a significant step forward for municipal finance in Serbia and the country’s capital markets,” USAID said in an e-mailed statement.
The cities of Pancevo, east of Belgrade, and Uzice in western Serbia are also expected to issue bonds, Metzler said.
“As other cities follow Novi Sad’s lead and begin to go to the markets for financing, competition should increase, costs should decrease, and capital investment projects,” will accelerate, the agency said.
--Editors: Douglas Lytle, James M. Gomez
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