Andorra Closes €500M Sustainable Debt at 3.875% Amid 2.58x Oversubscription

Andorra's recent €500 million sustainable bond issuance will increase financial expenses by €15 million in 2027, pushing the total interest cost to €29.9 million—a 79% rise from the current €16.7 million forecast.

The refinancing of the three-year bond, closed at a 3.875% coupon rate with €1.292 billion in demand from 57 investors across 16 countries, replaces a 2022 issuance maturing in February 2027. Finance Minister Ramon Lladós highlighted the 2.58x oversubscription and 32 basis point risk premium over benchmarks as evidence of strong market confidence, despite higher global rates. Demand included Andorran banks, European institutions like the European Investment Bank and European Commission, plus investors from the US, UK, and Middle East.

The higher coupon—nearly four times the original issuance rate—drives the expense surge. Officials note Andorra's debt cost remains low compared to peers, given its modest debt level, now projected at 28% of GDP by year-end, down from 46.3% in 2021. The updated green, social, and sustainable bond framework was released on 23 September.

Looking ahead, financial expenses should stay relatively stable through 2031, when another €500 million issuance matures. The syndicated credit line expires sooner but sees limited use and typically holds a positive balance.

This comes amid the 2027 draft budget framework, which projects rising operational spending—on personnel due to salary policy reviews, goods and services for innovation sectors, waste management, elections, and the National Emergencies Centre, plus transfers for healthcare and housing. Total spending will fall short of the €834.8 million cap, with operating expenses growing 10.8%, exceeding GDP growth forecasts. Investment reaches 10.6% of the budget, surpassing the 6.9% five-year average and meeting the current spending rule.

Debt stays within limits at €1.238 billion (28% of GDP), below the €1.540 million (35% of GDP) ceiling. Revenues rise via direct and indirect taxes, immigration fees from non-working and self-employed residents' loss deposits, and dividends from Andorra Telecom, Forces Elèctriques d’Andorra, and the Andorran Gaming Regulatory Council. A €4.17 million allocation to the compensation account equals 0.5% of expenses.