From Wednesday until September 9, Estonian residents can buy Estonian government bonds through their bank. /nginx/o/2024/07/03/16196434t1h17b3.jpg)
Estonian bond from 1927. Photo: Romet Kreek
From Wednesday until September 9, Estonian residents can buy Estonian government bonds through their bank.
The offer addressed to Estonian retail investors reaches 200 million euros for the first time. The funds raised will be used to cover the budget deficit and increased defense spending.
The maturity date of the two-year bonds is 16 September 2026, when the Estonian state will pay the bondholder an amount equal to the nominal value of the bond.
The state pays a fixed interest rate of 3.3 percent per annum on the bonds, paid once a year.
You can subscribe to Estonian government bonds through LHV, Swedbank, SEB and Luminor, the minimum subscription amount is one bond with a nominal value of one hundred euros.
To subscribe, you need a securities account, which can be opened at your home bank or another service provider. To subscribe to bonds, a company or other legal entity needs a LEI code.
"Borrowing money is an inevitability for Estonia in the current situation, not a goal, but this time it also means attracting the savings of its citizens, which is expected to strengthen people's connection with the country and its fate. The current deficit is not a good sign of the state of public finances, but covering it in this way also serves as support for the people, the cohesion of society and the financial market," said Finance Minister Jürgen Ligi.
Janno Luurmees, head of the Treasury Department at the Ministry of Finance, said that the bonds were offered and the interest was calculated on a market basis. "The lower nominal value and shorter term than usual are due to our desire to make the bonds accessible to as many people as possible," Luurmees said.
According to Kaarel Ots, Chairman of the Management Board of the Nasdaq Tallinn Stock Exchange, government bonds will create a new and accessible financial instrument for the Estonian capital market, which will also contribute to improving overall financial literacy.
"Both a novice investor may be interested in taking his first steps on the securities market, and an experienced investor – in order to diversify risks. The biggest difference with a term bank deposit is precisely its liquidity – if desired, government bonds can be bought and sold," Ots said.
The Estonian state engaged AS LHV Pank and Swedbank AS as transaction managers. The legal consultant for the transaction was the law firm Sorainen.
A government bond is a security issued by a government that matures on a specific date with a specific authorized amount of interest. Interest is typically paid once a year on a specific date.
To subscribe to the bonds, i.e. to obtain the right to purchase the security, a securities account is required, which can be opened in your home bank. The bond will be freely traded and will be listed on the Nasdaq Tallinn Stock Exchange, where it can be bought and sold on the secondary market.
Over the past few years, a number of European countries (including Belgium, Croatia, Ireland, Italy, Latvia, Lithuania, Portugal, Romania, and the United Kingdom) have issued government bonds in varying amounts aimed at retail investors, although these bonds have not always been traded on the stock exchange. The maturities of the bonds have ranged from one month to ten years. Since government bonds are one of the least risky financial instruments, they have also attracted new small investors to the securities market.
Since the onset of the COVID-19 crisis in 2020, the Estonian government has become more active in issuing both long-term and short-term bonds. As of the end of May, investors' portfolios held long-term Estonian government bonds worth 4 billion euros and short-term bonds worth 1.1 billion euros. These bonds were primarily aimed at professional investors and international funds.
Estonia is among the countries with the lowest debt burden in the European Union – the debt burden of the Estonian state in 2023 was 7.3 billion euros, or 19.6% of GDP. The volume of Estonian household deposits at the end of July this year reached a record 12.4 billion euros, and term deposits amount to more than 4.3 billion euros.
