Small investors to be offered €200 million worth of government bonds

Euros (photo is illustrative).
Euros (photo is illustrative). Source: Siim Lõvi/ERR

The Ministry of Finance is planning to offer bonds totaling €200 million to the public next year to help cover the more than €1 billion state budget deficit. Recent bond issues show that small investors in Estonia are looking to invest their money.

This week, LHV bank made €35 million selling bonds to the Estonian market.

"It was well oversubscribed, more than 16 times over, or €407 million was offered to us, and in total more than 16,000 investors subscribed. It was a very big surprise for us that there was such a huge oversubscription. /.../ If you take out this surplus from our issue, there is around €370 million waiting for good projects in Estonia today," said Sander Pikkel, head of LHV brokerage, told Thursday's "Aktuaalne kaamera".

Kaarel Ots, head of the Tallinn Stock Exchange, has repeatedly said small investors, ordinary Estonian citizens, could buy government bonds.

"A government bond is considered the safest, lowest-risk security. Why shouldn't the state offer its citizens the opportunity to invest their savings and do something useful? By benefit, I mean that if the state is borrowing anyway – and I am not going to go into whether it is necessary to move towards a balanced budget like this, so quickly – but it is necessary to borrow, it is necessary to invest, then why do we have to borrow in such a way that this money goes out of Estonia?" he said.

Ots thinks it would be possible to raise approximately €500 million in bonds in Estonia.

The government actually plans to start offering bonds next year, Minister of Finance Mart Võrklaev (Reform) said.

"The plan, or my wish, has been that in the first half of next year, we will offer Estonian retail investors, or retail investors more broadly, the opportunity to buy government bonds. The main point is that the interest rate may be somewhat more expensive for the investor, and the state will then have to pay more, but on the other hand, we would also be able to give our Estonian people a share," he explained.

The proposed government bond's interest rate should be more attractive than the deposit rate, which has risen more than 4 percent.

"The interest rate on government bonds should be a little higher than that on savings. I think that as long as the state can get cheaper money from foreign investors, from institutions, it makes economic sense to take advantage of it and raise the money as cheaply as possible," said LHV's Pikkel.

So far, the state has offered bonds to foreign investors as they can attract a lot of cheap money.

"The amounts we have needed have been quite large. According to local estimates or estimates from various experts, the amount that we could raise from the local market is perhaps up to €200 million a year. If we take into account the fact that we will need to borrow €1.7 billion next year, that is a relatively modest amount," said Janno Luurmees, head of the state treasury at the Ministry of Finance.

Estonia also issued new bonds on Thursday. In total, the state issued bonds in the amount of €285 million with terms of both six and 12 months. The yield of both until maturity was nearly 4.1 percent.

In June, the state issued ten-year bonds, and their interest rate was 3.6 percent.

Estonia's budget has been in deficit since 2020 and the state has needed to borrow money to cover it.


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Editor: Merili Nael, Helen Wright

Source: Aktuaalne kaamera

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