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12/22/13 - Cuba Standard.com - Deficit widening, Cuba to emit 20year bonds 

Issuing Eurobonds since 2006: Banco Central de Cuba

CUBA STANDARD - Hoping to find international investors who believe in the
long-term promise of economic reforms, Cuba will emit 20-year sovereign
bonds to cover its widening deficit next year, Finance Minister Lina
Pedraza told the National Assembly Saturday.

The move marks Cuba's return to sovereign bond markets. Although Cuba's
central bank entered the Eurobond market seven years ago, Cuba has no track
record with long-term sovereign bonds.

Since a default on foreign debt in 1986 and throughout the Special Period,
Cuba had to rely exclusively on government loans under bilateral agreements
and high-interest bank loans. Due to U.S. resistance, the country is
excluded from multilateral institutions such as the Interamerican
Development Bank, IMF and World Bank and their lending mechanisms.

The revenues from the bond issue will cover up to 70 percent of the deficit
- forecasted at 4.7 percent of GDP in 2014 - and the debt generated by it,
Pedraza said, according to Prensa Latina. The remainder will be covered
with new money printed by the Central Bank.

A bond issue will help control inflation more efficiently, Pedraza told the
parliament. The widening deficit and inflationary pressure is hitting Cuba
just as it is going through monetary reform.

The announcement comes days after the Council of Ministers forecasted a
feeble 2.2 percent GDP growth rate for 2014; growth in 2013 was only 2.7
percent, almost one percentage point below predictions. The slow growth is
a disappointment for Cuba's economic reformers and an indication that the
changes may take more time to gain traction.

The 2.5-percent, 20-year bonds will be negotiable instruments and can be
transferred from one Cuban bank to another, when necessary, Pedraza said,
without providing any more details.

In an apparent effort to regain footing in international finance markets in
2006, the Cuban Central Bank dipped its toes in the Eurobond market on the
London Stock Exchange with two batches of short-term issues. This was
followed by additional series of bonds in 2007 and 2008.

The results were mixed.

In 2007, the Banco Central de Cuba (BCC) repaid holders of the first two
series of one-year bonds - a €400 million, 7-percent bond, and a €500
million, 8-percent bond. The BCC then issued two series of two-year bonds
in 2007 for a total of €200 million, three series of two-to-four-year bonds
in June 2008 for a total of €215 million, and another three series of
two-to-four-year bonds in November 2008 for €215 million. Then, in 2009 a
cash crunch forced the BCC to roll over the two €200 million bonds issued
in 2007, according to Reuters, extending repayment by one year. Cuba
Standard couldn't obtain information about the current status of the 2007
and 2008 bonds immediately.

The 2006 bonds did not generate a lot of international exposure. Only 15
percent of the two bond issues were bought by international banks, many of
them institutions with a previous lending record with Cuba; the other
buyers were Cuban state banks.

The BCC's were the first Cuban bond issues in decades. In 1986, the nation
stopped serving its foreign debt entirely; part of this debt has been
rescheduled and is being served, but some $8 billion, according to the
prospectus of the 2008 bonds, remained unserved five years ago. Since the
default, Cuba accumulated a spotty service record on the government and
high-interest bank loans it obtained since the 1990s; after the 2008-09
cash crunch, the country renegotiated many of its loans.

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