Bond Titano of San Marino, spread with BTp remains above 200 points
It was the month of February last year when the small Republic of San Marino issued its first state title on international markets, renamed by the press “Titan bond” from the name of the mountain on which the sovereign entity stands. A few months earlier she had tried unsuccessfully. In any case, in order to attract capital outside the national borders it was necessary to offer a very high coupon compared to the market conditions in that phase: 3.25%. It is distributed through the Payments Bank of New York Mellon. A lot for a three-year deadline. The security will be redeemed, in fact, on February 24, 2024 (ISIN: XS2239061927).
Yesterday, the Titan bond was bought above par at a price of almost 102. Its yield was in the area of 2.20%, about +210 basis points above the 2-year BTp. The knock down remains very high, although at the time of issue it was 340 points. By December, however, he had dropped significantly below 200 points. In other words, whoever buys the San Marino bond today would receive an average annual gross yield of 2.2% more at maturity than an investment of the same duration on the Italian sovereign market.
Bond Titano, low rating and risks from banks and the economy
San Marino has a “junk” evaluation. The only agency that still assigns it to the republic is Fitch with the BB + rating, the highest rung of its “junk” ladder. However, it notes that for levels of wealth and per capita GDP, San Marino would be closer to AAA-rated countries, to be clear, Germany. Its economy grew by 5% in 2021 after the -6.6% accused in 2020 with the pandemic. This year, things go from + 3% to + 3.5%. The public debt it is expected to peak at 90.4% of GDP in 2021 and to drop to 85% in 2025.
The deficit also improved from 5.7% in 2021 to 2.3% expected for this year.
There is another element very favorable to the San Marino debt: 35% of it was contracted through two perpetual bonds, ie with no maturity, and at very low rates: respectively 1.75% and 0.1%. On the other hand, the Titan bond will weigh 20.8% of GDP expected in the year in which it will have to be repaid. Furthermore, i impaired loans of domestic banks in the third quarter of 2021 amounted to 60.6% of the total, to 35.8% net of provisions. This implies the high risk of state intervention to avoid the collapse of the banking system in the near future. And clearly, fiscal stability would be threatened.
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