February 12, 2020 / 8:06 AM / 12 days ago

Serbia aims to make domestic debt euroclearable by year-end: finance minister

LONDON (Reuters) - Serbia aims to make its local debt euroclearable by year-end and to ramp up foreign holdings in its debt markets to 40% in the near future, the country’s finance minister Sinisa Mali said.

Making local debt euroclearable means investors would then be able to settle through Euroclear. The Belgium-based firm specializes in the settlement and safe-keeping of domestic and cross-border securities for bonds, equities and derivatives, making it easier for international investors to trade.

The Serbian government is expected to sign the terms for an agreement with Euroclear in October.

“For me this is the cherry on the cake... We will do whatever we need to do in the next couple of months,” Mali told Reuters after signing a memorandum of understanding with Euroclear.

“We will work on this process and have euroclearable bonds, maybe even as early as the end of this year.”

Access to an international settlement system usually brings more foreign capital to a market and often lowers bond yields, as was the case in Russia, where rouble debt became “euroclearable” in 2013.

Mali said he hoped this would help attract more foreign investors to Serbia, largest of the Western Balkan nations.

“Euroclearability will broaden the base of international investors, that is why I expect a huge jump from 30% to 40%,” said Mali, adding he hoped eventually that half of all local bonds would be held by investors abroad.


Mali said the government was in regular contact with ratings agencies and that Serbia was in line for its first investment grade rating.

“We expect this as early as this year,” he said.

Both S&P Global Ratings and Fitch have upgraded Serbia to BB+ - one notch below investment grade - in the past five months. S&P also has a positive outlook, citing strong FDI inflows and fiscal discipline.

The government plans to issue around 230 billion Serbian dinars ($2.14 billion) of debt in local markets and another $2 billion euros on international capital markets, denominated in euros.

The government has ramped up investment spending plans, pledging to spend around 14 billion euros ($15.3 billion) in the next five years to improve living standards and infrastructure.

The investment plan comes ahead of a parliamentary election expected in late April. President Aleksandar Vucic’s ruling Serbian Progressive Party has faced anti-government protests and scandals involving top officials in recent months, and the opposition has said it will boycott the vote.

Mali said the government was looking at possibly adding a Chinese yuan-denominated instrument to its debt mix in coming years and could also issue a green bond either on domestic and international markets in 2021.

Mali was also hopeful Serbia’s local currency bonds would be included on the widely tracked JPMorgan Government Bond Index Emerging Markets (GBI-EM) in the coming two months after making it onto the index provider’s watchlist some 10 days ago.

The minister said Serbia’s economy was on track to ramp up its economic growth to 7% in the next five years.

“The worst in austerity measures is behind us, now it is time to grow,” he said.

Reporting by Karin Strohecker; Editing by Gareth Jones

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