Cyprus Is Said to Consider Early Repayment of Russian Loan

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Cyprus is weighing an early repayment for part of a 2.5 billion-euro ($2.8 billion) Russian loan that dates back to the low point of the financial crisis, two government officials said, after yields on the country’s 10-year debt hit a record low last week.

While the government is seriously considering early repayment, no final decision has been made yet, said one of the officials, who asked not to be named citing the ongoing decision-making process.

Current market conditions have prompted the government to weigh selling new debt earlier than originally planned, the second official said. Yields on Cypriot 10-year bonds dropped to 1.37 percent on Friday, the lowest since 2015, when Bloomberg began compiling the data.

The Mediterranean country agreed to the Russian loan in 2011, at a time it was losing access to financial markets. The depths of the economic crisis on the island saw rising non-performing loans, with banks exposed to a super-leveraged property market. Government debt was downgraded to junk status.

In seeking funding from Russia, Demetris Christofias, Cyprus’s president at the time, was trying to avoid requesting a bailout from the European Union and the International Monetary Fund. The government ultimately agreed to a bailout in March 2013.

This would not be the first time that Cyprus opts for early repayment on debt. In July 2017 the government repaid almost one third of its loan from the IMF.

Debt Reduction

The IMF expects the Cypriot economy, one of the fastest growers in the euro zone this year, to keep expanding, while it projects that the island will have a primary budget surplus of 4.1 percent of gross domestic output this year. Creditors have urged the government to step up the pace of structural reforms in a number of areas such as the public sector and judicial system.

The loan from Russia was restructured in 2013 under the current administration of President Nicos Anastasiades, after the country secured a bail-out from international lenders and depositors at its two biggest lenders took a bail-in on their deposits. The loan’s repayment period was extended to 2021 and the interest rate was cut to 2.5 percent from 4.5 percent.

The outstanding amount of the loan is currently at 1.57 billion euros.

--With assistance from Paul Tugwell.

To contact the reporters on this story: Georgios Georgiou in Nicosia at ggeorgiou5@bloomberg.net;Sotiris Nikas in Athens at snikas@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Jerrold Colten, Eleni Chrepa

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