Bloomberg News

Latvia to Use $1.25 Billion Bond to Repay Debt, Vilks Says (1)

December 06, 2012

Latvia will use the proceeds from the sale of $1.25 billion in bonds sold yesterday to lower debt- servicing costs and refinance an international loan it took in 2008, Finance Minister Andris Vilks said.

The Baltic country sold the seven-year bond, denominated in dollars, at a yield of 2.889 percent, the lowest it has ever sold debt for on foreign markets, according to a statement from the Finance Ministry in Riga, e-mailed late yesterday.

“While improving Latvia’s credit ratings, we have a unique possibility to refinance our external debt in international financial markets,” Vilks said in the statement. Yesterday’s bond sale, the third since June last year, will allow Latvia to “lower the cost of debt servicing in the near term,” he said.

Latvia took a loan from the European Union and International Monetary Fund in 2008 after a real estate-fueled boom turned bust and its second-biggest bank needed a rescue. It repaid about 211 million euros ($275.3 million) ahead of schedule to the IMF in September, cutting its outstanding debt to the fund by 18 percent.

The yield on the bond sold yesterday, due Jan. 2020, rose 3 basis points as of 11:50 a.m. in Riga to 2.9196, according to Bloomberg data.

The IMF imposes a 200-basis-point surcharge on loans, such as Latvia’s, whose volume exceeds 300 percent of the country’s quota at the fund and another 100 basis-point surcharge on loans above that threshold for more than three years.

Latvia’s loan from the fund at the end of October was 424 percent of its quota, after peaking at 691 percent in 2010, according to the IMF. The country would have been paying the additional surcharge on loans outstanding for more than 3 years since the end of last year.

-- Editors: Alan Crosby, Jeffrey Donovan

To contact the reporter on this story: Aaron Eglitis in Riga at aeglitis@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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