Marcus Ashworth is a Bloomberg Gadfly columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

Tajikistan, the poorest state in central Asia, is trying for its first international bond deal. After a few false starts over the years, this time it might pull it off -- showing emerging market investor caution is being thrown to the wind. Or in this case, water.

The deal will finance construction of the world's tallest dam and the largest hydroelectric power station in central Asia. That could lead to energy independence and overseas income from electricity exports to neighboring Pakistan and Afghanistan. Excellent news for the issuer.

The country has said it wants to issue benchmark bonds maturing in 10 years. If the order book is sufficient for $1 billion of debt, the deal would almost certainly enter J.P. Morgan's Emerging Market Bond Index. That would make it a must-buy for most emerging-focused funds. 

But as with Iraq's issue last month, the lure of higher yields and the demands of investing according to index rules look set to override conventional logic.

Early indications are Tajikistan's new bond will yield modestly more than the recent 10-year Belarus deal, which currently trades just above 6 percent. At first this may not make sense -- Tajikistan is rated one notch higher, at B3 by Moody's Investors Service. But this is from an unknown issuer, and investors will rightly want a premium. 

Tajikistan's Peer Group
Pricing on the country's new 10-year dollar bond may put it between Belarus and Iraq
Source: Bloomberg
Note: Iraq's latest dollar bond is a 5.5 year maturity

This potential yield still looks pretty low. There is no guarantee the $3.9 billion project will be completed. It has dragged on for years, and is not expected to be fully operational until 2032. Just $200 million of financing has been put in so far. One thing for sure, though, is that country's ratio of debt to GDP would jump to 57 percent from 43 percent. Risky stuff for a tiny economy with little real industry to speak of -- it's got one big aluminum plant, a lot of overseas workers' remittances, and not much else. 

Emerging Demand
Belarus's recent 10-year $600 million bond highlights the strength of demand for emerging market credits that offer a bit of yield
Source: Bloomberg


A big external risk is a long-standing dispute with the country's more-powerful neighbor, Uzbekistan, which is worried about damage to its irrigation of its cotton fields that lie downstream of the dam. Resolution depends on the outcome of negotiations with the new Uzbeki president.

On top of this, the new bond will not be secured on any assets, nor are there any guarantees from supranational development banks. The risk is the full faith the investor has in the Tajiki government, and whether this project ever kicks into life and produces revenue.

Tajikistan has barely $600 million of foreign currency reserves, largely gold, which according to Moody's covers less than 10 percent of its existing annual debt repayment -- prior to any new foreign bond issuance.

That this debt deal is even feasible, for what is not even a frontier country credit, is a clear illustration of the risks now acceptable to emerging market investors -- the yields that investors might clinch with this one aren't too far off from what's been seen in recent deals. This is a sign more of the frothiness of the credit markets than the relative merits of Tajikistan. 

Disappearing Spread
According to the world's benchmark index for emerging market bonds, spreads are the narrowest for three years
Source: J.P. Morgan, Bloomberg

Success in getting this new borrower away will no doubt encourage Ukraine to return to the bond market. There has been relatively little issuance from the former vassal states of the Soviet Union and that scarcity value will surely bolster demand. They'll be putting the World Bank out of business at this rate.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Marcus Ashworth in London at

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Jennifer Ryan at