March 5 (SeeNews) - Montenegro plans to issue its first international bond in US dollars on Tuesday, seeking to raise between $500 and $700 million (460-650 million euro), an executive at local Hipotekarna Banka said.
The seven-year bond opens up opportunities for attracting new investors and diversifying the investor base, Gojko Maksimovic, head of Hipotekarna Banka's financial markets division, said in a Linkedin post on Monday.
Montenegro, which has so far issued only euro-denominated international bonds, targets a yield of some 7.50%, Maksimovic said. He noted that this would represent a higher interest rate compared to a potential issuance in euro.
Despite the higher cost of borrowing in USD compared to euro, Montenegro aims to mitigate currency risk through currency swap arrangements immediately after the bond issuance, allowing it to repay the debt in EUR at a rate of about 5.90%.
Maksimovic, however, pointed out that these swaps carry some risk. The longest period for which the swap arrangement can be fixed is up to 4 years. After this period, a new price for the instrument must be determined based on prevailing market conditions, exposing the country to currency risk.
($ = 0.925 euro)