The Chinese Exim Bank has been paid six installments of the loan so far, totaling 289.88 million EUR, of which 190.5 million dollars goes to the principal and 99.4 million dollars to the interest payments. This loan was intended for financing the priority section of the Bar-Boljare highway, from Smokovac to Mateševo. Repayment of the loan principal began on July 21st, 2021, and is made semi-annually.
“The loan with the Exim China Bank was concluded in the amount of 944 million USD, of which funds in the amount of 911.74 million were utilized. As of January 25th, 2024, the outstanding debt amounts to 721.28 million USD, or 663.55 million EUR (according to the average contracted exchange rate with banks),” stated the Ministry of Finance, headed by Novica Vuković.
The credit arrangement with the Exim China Bank was concluded in 2014, with a grace period of six years and a repayment term of 14 years.
“As known, repayment of the loan principal began on July 21th, 2021, repayments are made semi-annually, and the final maturity date is January 21th, 2035, meaning that there are 22 more installments of the loan to be repaid,” stated the Ministry of Finance.
Recently, the Ministry of Finance concluded a hedging arrangement with four banks for the loan from the Exim Bank. The hedging arrangement is concluded until the end of the loan repayment, until 2035, with a review of the terms after two years. After hedging, Montenegro pays the loan in euros at an interest rate of 0.98 percent, whereas before hedging, the loan was paid in dollars at an interest rate of two percent. This is the second time that loan hedging has been conducted, and so far only one of the six installments has been paid in dollars.
“The last installment of the loan, with a maturity date of January 21st, 2024, amounted to a total of 40.49 million USD. Of this amount, 32.78 million dollars are allocated to the repayment of the principal, and 7.71 million dollars to the repayment of interest. Instead of 37.24 million euros, which would have been paid on the payment date for the repayment of the installment of the loan to the Exim China Bank (according to the average exchange rate of the CBCG on January 19th, 2024 – the payment date), thanks to the hedging arrangement, Montenegro allocated an amount of 33.69 million EUR for the purpose of repayment of the installment of the Chinese loan. Therefore, the total savings due to the hedging arrangement for the last installment of the loan amounted to 3.6 million EUR,” emphasized the ministry.
The names of the banks with which the hedging arrangement was concluded were not disclosed, only stating that they are four reputable, credible European and American banks.
“The Ministry of Finance is currently unable to provide additional information regarding the banks with which the hedging arrangement was realized, considering that the documentation related to the hedging arrangement is marked as ‘internal’ and it is standard in contracts of this type that details cannot be disclosed without the consent of the other party if the other party does not agree,” stated the Ministry of Finance.
The loan requires constant risk management. The Ministry of Finance was asked if there are any risks related to the hedging arrangement, given that we have only heard about the benefits so far.
“The most important thing is that Montenegro has protected itself from currency risk in the coming period through the hedging arrangement, demonstrating responsible management of public finances and debt management, which further strengthens Montenegro’s position in the international market. Significant savings will be achieved due to the interest rate, and it is especially important that, although the arrangement was concluded until the end of the loan repayment, a review of the terms was agreed upon after two years,” stated the Ministry of Finance.
Hedging, as they added, represents the locking of transaction parameters at market conditions prevailing at the time of transaction realization.
“The transaction conditions remain fixed regardless of market movements until the moment of final transaction maturity or the moment of condition revision before maturity, which is usually the case for transactions with an extremely long maturity period,” explained the Ministry of Finance.
