Montenegro to implement loan agreements worth EUR 100 million

Podgorica, Montenegro (6 December 2013) -- Government of Montenegro approved Thursday the report on the implementation of loan agreements worth EUR 100 million and tasked the Finance Ministry to sign the documents required for the implementation of the arrangements including:

- Loan agreement with Erste Bank AD Podgorica totalling EUR 15 million;
- Loan agreement with Societe Generale Bank of Montenegro amounting to EUR 5 million;
- Emission of Eurobonds in the amount of EUR 80 million.

The Government recalls that the 2013 Budget Law defines debt ceiling up to EUR 250 million. During 2013, credit arrangements in the amount of EUR 148.5 million were concluded, out of which EUR 102.5 million was spent to cover the guarantees for the Aluminium Plant Podgorica (KAP), representing the unforeseen expenditure.

This means that, along with the loan of EUR 100 million, Montenegro will succeed in ending 2013 with total indebtedness of EUR 248.5 million, covering the activated guarantees for the KAP. This confirms the great success achieved on the revenue side of the budget, due to implementation of fiscal adjustment measures and intensified fight against the gray economy.

Loan agreements with Erste Bank AD Podgorica and Societe Generale Bank of Montenegro have been provided under the same terms, with 45-month maturity, including 9-month grace period and an interest rate of 6-month Euribor + margin of 5.75 %.

The amount of EUR 80 million is provided by the emission of Eurobonds with 3-year maturity and an interest rate of 3-month Euribor + margin of 5.95%.

The Ministry of Finance expected the emission will be realised with the margin of 5.75 % but, due to unfavourable impact of recently lowered Montenegro’s credit rating by Standard & Poor's, the loan costs were slightly increased. However, the price is significantly lower compared to the two previous Eurobond emissions (interest rate of 7.875 % in 2010 and 7.25% in 2011), as well as in relation to loan cost of countries in the region with the same credit rating.

The Government believes that this loan structure provides a good balance between domestic and foreign sources of funding, in a manner than does not decrease potential domestic banks’ credit potential, given the need to support real sector and investment projects.

Funds provided by these arrangements will be used to refinance debt and repay short-term and long-term loans (about 2/3 of the total), as well as to finance the budget expenditures.