Cyprus issues EUR2.2 bln special bonds

Cyprus Finance Ministry signed agreements with commercial banks based in Cyprus and the Cypriot cooperative banks for the allocation of a three-year cover bonds worth of EUR2.2 bln, in a bid to inject additional liquidity to the Cypriot financial system.
The Ministry's primary concern is to stimulate growth in the real economy, hampered by the financial crisis, by creating the conditions for lower lending interest rates.
The bonds were allocated according to the bank's market share in the loan market in Cyprus. The original cover bonds issue was set to EUR3 bln while the remaining EUR800 mln will allocated in a second round.
''This is another step by the government in its effort to further strengthen the liquidity of the system with primary objective the decrease of the lending rates'', Finance Minister Charilaos Stavrakis said.
Stavrakis added that the Ministry plans to issue 4 to 7-year bonds of EUR1 bln to international investors early 2010, following the issue of a similar road show last June.
''Our intention is to proceed with 7-year government bonds to increase the refinancing period of the current public debt because in such uncertain conditions is better for one to pay more margin and to secure long-term loan from foreign banks,'' Stavrakis said.
The Finance Minister also pointed out that the government is expected to proceed with the issue of a three-year cover bonds in the second half of 2010.
Stavrakis said that if the banks lower their lending rates by 1% the real economy would benefit by EUR500 mln given that the loan market in Cyprus amounts to EUR50 bln.
''The bonds should be used for the strengthening of the real economy… we are witnessing an extremely difficult period with low economic growth,'' he concluded.