Kazakhstan: Government issues bonds to avoid restructuring

On Monday, the Kazakh government announced its intention to sell 10-year and 30-year bonds in US dollars to international investors after more than 14 years of absence from allowing public investment in government debt. Intended to avoid an expensive and potentially politically divisive battle over debt restructuring (such as the one in Argentina in 2001 and more recently last month), the combined orders from investors topped $11 billion. The last time a Central Asian country offered debt was in April 2000, when Kazakhstan sold $350 million worth of debt that matured in 2007.

Orders were exceptionally high due to continually low interest rates throughout the rest of the global bond market and Kazakhstan’s posting of a 4.05% yield for the 10-year coupon and at 5.1% yield for the 30-year one, giving bond investors hungry for larger gains something to contemplate. Kazakhstan’s current problems probably stem from the need to raise a large amount of capital relatively quickly.

The enormous size of the order book demonstrates that international investors are unafraid of the risk of developing economies like those in Central Asia given that they appear to be worthwhile expenditures. The securities are likely to be rated Baa 2 by Moody’s and BBB+ by Standard & Poor’s credit rating agency to reflect the rating that Kazakh sovereign debt currently has.

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