Armenia uses Eurobond proceeds to cover deficit and buy back debt

Armenia has used proceeds of a recent $500 million Eurobond to buy back part of an older issue and will use another $85 million to cover its 2015 budget deficit instead of selling domestic debt, the deputy finance minister said. Reuters reports.

Pavel Safaryan told a government meeting on Thursday that Armenia had received $487.4 million from the March 19 sale of a $500 million 10-year Eurobond.

Some of that money was used to buy back $205 million of its only previous Eurobond, a $700 million seven-year transaction sold in September 2013. The new Eurobond paid a yield of 7.5 percent, much less than the 2020 bond's 10 percent coupon.

"We will use 40 billion drams ($85 million) from the Eurobond issue to cover the budget deficit in 2015 instead of an initial decision to issue local treasury bills," Safaryan said, adding this would avoid overloading the domestic debt market.

The 2015 budget sees total government revenues of 1.191 trillion drams, spending of 1.305 trillion drams and a deficit of 114 billion drams.

The dram has fallen sharply in value over the last year along with Russia's rouble, which has been hit by weak oil prices and Western sanctions over Moscow's role in the Ukraine crisis. Armenia, a former Soviet state of 3.2 million people, is closely tied to Russia through trade and remittances.

The local currency was trading at around 473 to the dollar on Thursday, compared to just 407 drams a year earlier.

Armenia is rated Ba3 with a negative outlook by Moody's and B+ with a stable outlook by Fitch.

Downgrading Armenia in January, Moody's cited declining remittances, uncertain foreign investment, exchange rate volatility and pressure on foreign exchange reserves.