Iraq plans bond sale worth $2 billion, PM’s office says

November 30, 2016 1:04 pm


* Government in Iraq has struggled to pay its bills since crude prices dropped in 2014

* Bonds will be sold in 2 tranches of $1bn each to help narrow budget deficit

* US government has agreed to guarantee one tranch

Iraq’s finance ministry will sell $2 billion worth of bonds on international markets to help narrow its budget deficit in 2017, Prime Minister Haider Al Abadi’s office said on Tuesday.

The Iraqi government, which relies almost exclusively on oil income, has struggled to pay its bills since crude prices dropped in 2014, the same year that Islamic State militants seized a third of the country’s territory.

The bonds will be sold in two equal tranches of $1bn each, according to Abadi’s statement.

US guarantee

The US government has agreed to guarantee one of the two tranches, to help Iraq lower its borrowing costs, the statement said. The other tranche will be sold at prevailing market conditions and Iraq will pay a higher interest rate.

Iraq has a speculative rating of B/B- from both S&P and Fitch. It has a $2.7bn in international bonds due in 2028 with a coupon of 5.8 per cent, currently yielding about 10 per cent.

Also Read: Iraq willing to cut oil output in OPEC’s plan to boost prices: PM

“Hold”

Exotix Partners in October changed its recommendation on the outstanding Iraqi bonds to “hold” from “buy”, because a recent rally has reduced the possibility of further gains. The bonds were yielding almost 15 per cent in January.

Exotix said Iraq’s 2028 government bonds have rallied as oil prices stabilised and the International Monetary Fund agreed to provide funds after Iraq committed to cutting public spending and controlling its debt.

The IMF in July approved a three-year, $5.34bn standby arrangement for Iraq to support Baghdad’s efforts to deal with lower oil prices and ensure its debt sustainability.

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