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Armenia Sells More Eurobonds


Armenia - A general view of central Yerevan against the backdrop of Mount Ararat, 5Nov2014.

In its most expensive ever borrowing operation reflecting the fallout from an economic crisis in Russia, the Armenian government has issued its second Eurobond worth $500 million at a yield of 7.5 percent.

The 10-year dollar bonds were sold in international financial markets through Deutsche Bank, HSBC and JP Morgan late on Thursday.

Neither Prime Minister Hovik Abrahamian’s office nor the Armenian Finance Ministry issued any statements on the development on Friday. The ministry promised to comment on Monday.

Abrahamian’s cabinet approved and announced the upcoming Eurobond issue on January 30. It cited the need to finance Armenia’s budget deficit and “neutralize” the Russian recession’s spillover effects on the Armenian economy. Deputy Prime Minister Vache Gabrielian said it is now “extremely important to ensure inflows of hard currency” into the country.

The Armenian budget for this year projects a deficit of roughly $250 million. “It’s not clear what the rest of the [proceeds from the latest Eurobond sale] will be spent on,” Ara Galoyan, an independent economic analyst, told RFE/RL’s Armenian service (Azatutyun.am).

Other analysts have suggested that the money could also be used for shoring up the national currency, the dram, and offsetting a possible shortfall in tax revenue resulting from slowing economic growth in Armenia.

In its 2015 budget, the government forecast a growth rate of just over 4 percent. The International Monetary Fund and the World Bank consider this projection overly optimistic given Armenia’s economic dependence on Russia.

“The Wall Street Journal” reported last week that the authorities in Yerevan will use the Eurobond proceeds to buy back up to $200 million of their previous dollar bond issue carried out in September 2013. The authorities raised $700 million at a yield of 6.25 percent at the time.

The higher cost of the latest borrowing reflects recent downward revisions by the Moody’s and Fitch agencies of Armenia’s credit ratings. Both agencies singled out a sharp drop in the dollar value of remittances from Armenians working in Russia. Those cash inflows account for more than 10 percent of Armenia’s Gross Domestic Product.

Moody’s said on January 15 that the economic situation in Russia is also the reason why it changed Armenia’s economic outlook to “negative” from “stable.” It cited “the risk that the impact of Russia's economic downturn on Armenia's economy will be more significant than currently expected.”

“Armenia is highly exposed to the severe economic downturn in Russia, which will weigh heavily on Armenia's balance of payment and growth prospects,” Fitch said for its part on January 30. Even so, it said the outlook for the South Caucasus country remains “stable” for now.

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