The Government of Montenegro will terminate the hedging arrangement concluded in July 2021 for a loan from the Chinese Exim Bank, multiple sources close to the executive power confirmed. At the session on Thursday, the government adopted internal information on the results of the hedging arrangement, which can also be seen on the website.
According to the newspaper’s information, the Government, headed by Dritan Abazović, will inform the public next week about the details and reasons for terminating the arrangement, as well as how much the state earned from this arrangement, given that it has already paid four installments at an interest rate of 0 .88% in euros, instead of two percent in dollars. Due to hedging, Exim Bank was paid EUR 23 million less than it would have been if the loan had been paid in dollars, i.e. if it had been tied to the dollar exchange rate.
The loan for the highway was contracted in 2014 with the Chinese Exim bank in dollars and was exposed to currency risk until July 2021, when the government of Zdravko Krivokapić, at the suggestion of the Ministry of Finance, then headed by Milojko Spajić, decided to hedge the loan. that is, to conclude a hedging arrangement with four banks, and to pay the loan in euros at an interest rate of 0.88%, instead of two percent in dollars, as agreed in 2014. The loan was taken by the government of Milo Đukanović, while the Minister of Finance at that time was Radoje Žugić, the current governor.
The hedging arrangement was contracted with four banks for 14 years, with the conditions with the banks being reviewed after two years.
In mid-2021, the Ministry of Finance entered into a hedging arrangement with four banks: Goldman Sachs, Merrill Lynch, Societe Generale and Deutsche Bank. After concluding the hedging arrangement, Montenegro paid loan installments at an interest rate of 0.88%. The Ministry of Finance, headed by Aleksandar Damjanović, recently announced that the state has so far saved EUR 23.71 million in four installments, and that EUR 16.64 million of that amount is related to interest, and seven million to principal.
Savings in the first installment amounted to 3.96 million, in the second, which was paid in January 2022, 4.82 million EUR, in the third installment, paid in July last year, it was 8.55 million, and in the last installment EUR 6.37 million paid in January of this year.
Montenegro contracted a loan with the Chinese Exim Bank at the end of 2014 in the amount of USD 944 million, which was then worth around EUR 685 million. The contract for the construction of the highway was worth EUR 809.6 million, and it was then agreed that 85% of the amount would be paid from the loan, and the remaining 15% from the budget. The loan repayment term is 20 years, and the grace period was six years, i.e. until the middle of 2021. The Ministry of Finance hedged the loan before paying the first installment.
Since 2014, the exchange rate between the dollar and the euro has been changing, so the contracted price for the construction of the highway was increased by more than 100 million USD at one point due to the rise of the dollar.
The non-governmental organization Action for Human Rights previously announced that, according to the data provided to them by the ministry, the hedging contract is worth USD 818 million, although the total loan is USD 944 million. They then specified that the state concluded a hedging arrangement with the American bank Goldman Sachs in the amount of 175 million, Mary L. Lynch in the amount of 314.6 million, Societe Generale Bank in the amount of 210 million and Deutsche Bank in the amount of 118.3 million EUR. Even after the conclusion of the hedging arrangement, the creditor is still the Chinese Exim Bank.
The highway section was opened on July 13 last year. The state paid three loan installments before the road was opened.
157.8 million has been paid out so far
The Ministry of Finance recently announced that four installments of the highway loan in the total amount of USD 157.79 million have been repaid so far, of which USD 124.88 million is principal and USD 32.9 million is interest.
– The remaining debt based on the principal amounts to 786.85 million USD – the ministry announced to the News.
As they explained, the last installment based on this credit arrangement was paid on January 21, 2023.
– On that occasion, obligations in the amount of 41.16 million USD were settled, based on the principal amount of 32.78 million USD and based on the interest amount of 8.37 million USD. The next installment based on the credit arrangement with the Chinese Exim Bank is due on July 21, 2023. On that occasion, the amount of USD 40.69 million will be settled, based on the principal amount of USD 32.78 million, and on the basis of interest EUR 7.91 million – specified from Damjanović’s department.
