Investors have rushed to buy Iraq’s first independent bond sale in more than a decade, in a sign of a continued wave of demand for riskier debt across international markets.
The $1bn bond, which matures in 2023, had brought in $6.6bn of orders when books were reported on Wednesday afternoon. The yield was fixed at 6.75 per cent, lower than initial pricing expectations of more than 7 per cent.
The high levels of demand for the debt came amid strong appetite for risk across capital markets as low interest rates push investors to seek higher returns.
Last week, Greece, which has undergone multiple bailouts by the EU and International Monetary Fund, raised €3bn in its first bond sale for three years. In June Argentina was able to borrow $2.75bn of 100-year bonds at a yield of about 8 per cent, despite its long history of sovereign defaults.
The Iraqi debt sale is a critical moment for Baghdad, which has never sold a fully syndicated bond of this type independently. The country, struggling to overcome years of internal strife that followed the 2003 US-led invasion, has $2.7bn of bonds outstanding that were sold in 2006, and came as part of a restructuring of earlier obligations.
“This is their first ever marketed and syndicated international bond issue,” said Samad Sirohey, head of debt capital markets for emerging Europe, the Middle East and Africa at Citigroup. “The response has been a strong endorsement of what the country has achieved in recent years”.
The Republic of Iraq also issued $1bn of bonds guaranteed by the US this year, which came with a coupon of 2.149 per cent, and was linked to an international assistance package. Baghdad agreed a $5.4bn bailout programme with the International Monetary Fund in mid-2016.
Iraq’s outstanding bonds rallied slightly on Wednesday after the IMF released a statement on the country on Tuesday.
“The economic policies implemented by the Iraqi authorities to deal with the shocks facing Iraq — the armed conflict with Isis and the ensuing humanitarian crisis and the collapse in oil prices — are appropriate,” said the IMF’s David Lipton in a statement.
“In the fiscal area, the authorities are implementing a sizeable fiscal adjustment, mostly through retrenchment of inefficient capital expenditure while protecting social spending,” he added.
The IMF also said that the authorities are appropriately maintaining the peg of the Iraqi dinar to the US dollar, which provides a “key anchor” to the economy.
Iraq had previously planned to tap capital markets in 2015, but the sale was called off because of issues around pricing.
Fitch, the rating agency, boosted its outlook for Iraq from negative to stable in March this year, in a sign of its economic situation improving. The country’s economy had been hit by weaker oil prices and political instability.
The high levels of demand for Iraq’s bond follow on from significant sales of emerging market debt this year. Emerging market countries sold record levels of government debt in the first quarter this year, according to Dealogic data.
Iraq’s bond was rated B- by both S&P and Fitch, the rating agencies. Citigroup, Deutsche and JPMorgan were joint lead managers on the deal.
Source: The Financial Times,. AUGUST 2, 2017