Filenews 26 April 2022 - by TheanoThiopoulou
Cash remained at a very satisfactory level, end of 2021, due to better fiscal results than expected and the build-up from the previous year, approaching €2.76 billion.
Total cash recorded an increase in February 2021 by €1bn. compared to the rest of the end of January 2021, mainly due to the issuance of EMO (EMTN) this month, according to the public debt management report. Also an important element is that "the strong cash position of the Republic of Cyprus is expected to support the government in addressing the uncertainty caused by the military conflict between Russia and Ukraine in early 2022". It further notes that "the objective of maintaining the exposure of total debt to foreign exchange rate risk has been achieved. The approach followed was for debt issues denominated in euros only. As of April 2020, exposure to foreign currency was zero."
In April 2021, cash reserves declined significantly due to the repayment of a 52-week treasury bill. Subsequently, cash fluctuated slightly until the end of July 2021 and then stabilised at an average of €3.4 billion. for the period August – November 2021. The decrease in the amount of cash at the end of the year and its formation at €2.7 billion. is attributed to the repayment of the €580 million domestic bond. which was issued to the former CCB. The report notes that this amount of cash covers the financing needs of 2022 and the majority of the financing needs of 2023 without taking into account the fiscal impact of the Russian-Ukrainian crisis on the Cypriot economy and the financial sector.
According to the report "the effective management of the state's cash is very important for debt managers in order to ensure that the government has the necessary liquidity to execute public debt service payments on time and at the same time to prevent the accumulation of dormant cash reserves which may increase the cost of holding cash". It goes on to say that 'cash as assets can provide a high degree of flexibility in debt management and cash buffer functions, allowing governments to absorb shocks whenever they enter and reduce borrowing costs when access to capital markets is costly. Ensuring the effective management of cash is supportive of the debt management strategy, reducing the risk of refinancing and the risk of the market."
Duration of borrowing
The duration of the annual borrowings made in 2021 ranged between 0.25 years and 30 years, as stated in the report, with the majority of the debt being spread over the period between 1-5 years with a share of 56% of the total financing of 2021 (EMTN bond) and then over the period 0.25–1 years at a rate of 17% (short-term debt issues such as 13-week treasury bills). "The debt issued with a maturity of 6-10 years corresponds to 15% and consists of loans through the SURE tool and domestic bonds to individuals. The debt issued with a maturity of more than 10 years was around 12% and consists of long-term loans through the SURE tool maturing in 2047 and 2051, loans through the Recovery and Resilience Facility maturing in 2051 as well as loans granted by the EIB maturing in 2033 and 2041."
Based on the use of the funds received, about 75% of the funding was used by the government to pay the planned debt maturity. "About 20% of the annual funding was used under the measures to protect work and income, while a small amount of €75 million was used. granted by the EIB or around 4% was used for the implementation of new and ongoing infrastructure projects.
It is noted that in September 2021 an amount of €26 million was received. as a pre-disbursement under the Recovery and Resilience Facility.
Repayment schedule
A total amount of €1.8 billion of new issues was added to the repayment schedule of the public debt. The amount of €1 billion the new debt issuances relating to the 2026 external bond.
The second largest amount of debt of €162 million maturing in 2028 relates mainly to a loan granted through the SURE tool. An amount of €300 million (which is issued and expires during the year) concerns Treasury Bills. The balance is divided between the period 2022-2051 and concerns domestic bonds for individuals and loans granted by the EIB to finance new infrastructure projects or ongoing projects.
Wide participation of investors from international markets
As regards the geographical distribution of investors, according to the report, it is worth noting that since the year 2016, a more balanced distribution has been achieved among uk and other investors, but investors from the UK still have a significant share in the issues. Specifically, in the publications of the Republic of Cyprus held in 2019, a wide participation of investors from international markets, both from Europe and the United Kingdom, was achieved. Investors from Germany/Austria/Switzerland were the largest category of investors with a participation in the final allocation of about 29% on average in 2019 transactions. Taking into account all selected bond issues in the period 2015-2021, the participation rate of investors from the United Kingdom and Germany/Austria/Switzerland averaged 48% (in the issue). The remaining percentage is distributed between the countries of Europe (at 33%), Cyprus (at 10%), offshore USA (6%) and the rest of the world (at 3%).
