Kazakhstan is considering selling its first foreign-currency bonds in more than a decade next year to help cover the budget deficit and pave the way for its first sovereign Islamic debt.
The central Asian nation “is not excluding the sale of as much as $1 billion of Eurobonds next year,” Deputy Finance Minister Ruslan Dalenov said in an Oct. 26 interview in the capital, Astana. “As the sukuk market is quite narrow, it’s more reasonable to sell Eurobonds first,” which will become a benchmark, and then the Islamic bonds, he said.
Kazakhstan, where about half of the population of 16.6 million people is Muslim, may sell $500 million of Eurobonds, followed by the sale of sukuk, Dalenov said. The country doesn’t have outstanding foreign-currency bonds after it redeemed its last notes in 2007, according to Bloomberg data.
Kazakhstan, which plans a budget deficit of $5.1 billion for 2012, compared with an estimated $4.9 billion this year, may turn to international markets if government revenue and domestic bond sales won’t cover the deficit, Dalenov said. Higher-than- expected revenue from the custom union that Kazakhstan has with Russia and Belarus may help keep the budget in check, he said.
Global sales of sukuk, which pay asset returns to comply with Islam’s ban on interest, have jumped to $18.9 billion this year from $13 billion in the first 10 months of 2010, according to data compiled by Bloomberg.
Yields have declined 113 basis points, or 1.13 percentage points, this year, according to the HSBC/NASDAQ Dubai U.S. Dollar Sukuk Index. That compares with a 6.6 percent increase in developing-market bond yields, according to JPMorgan Chase & Co.’s EMBI Global Composite Index.
The Kazakh finance market “signals that it would be good if Islamic bond sales would be done in the nearest time,” Dalenov said, adding that the higher costs of Islamic borrowing “restrain us from giving optimistic estimations.”
The cost of protecting Kazakh debt against non payment for five years using credit-default swaps is 260 basis points, or 151 basis points lower than for Dubai, which last month raised $1.93 billion in a sale of Islamic bonds. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a country fail to adhere to its debt agreements. A basis point equals $1,000 on a contact protecting $10 million from default for five years.
Kazakhstan’s gross foreign-currency and gold reserves rose 15 percent since the end of last year to $32.5 billion in September, according to central bank data. Assets held by the country’s National Oil Fund advanced 29 percent to $40 billion in the period, it said.
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