In what is clear proof of the popularity of the Cypriot Investment Immigration Program, the August series of Cypriot retail bonds, which was the eighth issue in as many months by the Public Debt Management Office, was oversubscribed by three times.
Non EU-citizens are, under the Cypriot citizenship by investment program, are required to invest a minimum of EUR 3 million in bonds, long-term deposits, property, or corporate equity. In all, the government issued six-year bonds worth EUR 31 million last month, which is the second-highest in the series that began in 2014.
Demand for Cypriot retail bonds remained high despite the fact that the government has reduced the interest rates applicable on the next issue. In May 2015, the government had announced a reduction in the interest offered on the September series bonds. From the ninth issue, rates shall be 2.5%, 2.75%, 3%, and 3.25% for the first 24 months, 24-48 months, 48-60 months, and 60-70 months respectively. This change has been introduced with prospective effect.
The average yield spread over the six-year period is currently at 2.79%, lower from the 4% average return provided by these bonds when the bond issue program was originally launched in Dec, 2014. The first reduction took place at the beginning of 2015 when the average yield was reduced to 3.875%. Returns on the bonds are taxed at 3%, as opposed to the 30% tax imposed on all interest income in Cyprus.
In the previous series, the July series, the government had received 123 bids for a total of EUR 31 million. Out of these, EUR 22.5 million was received from eight foreign applicants.
The August series saw applications from 187 individuals with bids ranging from EUR 3000 to EUR 5 million, with half the amount raised coming from just four foreign applicants seeking eligibility under the Cypriot investment immigration program.
The government is seeking to raise EUR 120 million in a year by issued up to EUR 10 million worth of bonds to individual investors. However, the authorities have indicated their openness to exceed the monthly limit if the need arises. This program was introduced as a source for mid-term funding for the government. Conventional sources had dried up after investments made by Cypriot banks in Greek bonds became worthless during the recession. The government received assistance worth EUR 10 billion from international investors to tide over the crisis.
Foreign applicants have been the biggest contributors to the fund. The best month; December, 2014, which saw the government garnering EUR 37 million too witnessed significant bids from foreign investors.
The first quarter report indicated that Cyprus had raised EUR 57 million from the first three issues of the year. Continuing investor interest indicates that the second and third quarter too shall help the government enjoy a steady source of mid-term funds.
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Source: financialmirror.com