U.S.-Backed Bonds Planned by Tunisia Amid IMF Talks

Tunisia will seek a U.S. guarantee for its bonds for the second consecutive year and will sell Islamic debt in June as the North African nation mobilizes funds to shield the economy from Europe’s crisis and domestic turmoil.

The government may sell $500 million of U.S.-backed notes in the second half, Finance Minister Elyes Fakhfakh said in an interview. The yield on $485 million of similarly-guaranteed debt due July 2019 fell 21 basis points this year to 1.48 percent yesterday, compared with 5.34 percent on Tunisia’s euro-denominated notes due June 2020. The average yield on Middle Eastern sovereign debt was little changed last week at 4.37 percent, HSBC/Nasdaq Dubai indexes show.

The U.S. guarantee will help lower borrowing costs as Tunisia seeks to shore up finances amid the crisis in Europe, Tunisia’s biggest trade partner, and turmoil at home that threatens to hinder the transition to democracy. The killing of an opposition leader in February spurred Standard & Poor’s to cut Tunisia’s credit rating for the third time since the 2011 overthrow of Zine El Abidine Ben Ali to BB-, three levels below investment grade.

“We will ask for another U.S. Treasury backing,” Fakhfakh, the 41-year-old member of the secular Ettakatol party, said in an interview at Bloomberg’s regional headquarters in Dubai. “We are still in this transition process. There are still some risks.”

95% Done

The government also expects to sign an agreement with the International Monetary Fund for a $1.8 billion loan by May, he said. The talks were delayed after the Feb. 6 killing of Chukri Beleid, which set off a crisis that led to the resignation of Prime Minister Hamadi Jebali, a politician from the ruling Islamist Ennahda party. An IMF team will arrive in Tunisia for talks on April 8 before another meeting in Washington later this month. “We are in agreement on about 95 percent of the program,” Fakhfakh said.

Tunisia’s credit risk rose 39 basis points since the killing to 398, compared with an average 19 basis-point gain in the Middle East, data compiled by Bloomberg show.

While the government is still assessing the effect of the crisis on growth in the first quarter, it expects the economy to expand 4 percent this year compared with 3.6 percent in 2012, Fakhfakh said. Growth will be propelled by the chemical and mining industries as well as tourism and agriculture, he said. The budget deficit may widen to 5.9 percent of economic output from 5.1 percent as the government accelerates spending plans aimed at developing Tunisia’s interior region to create jobs.

Two Speeds

“In Tunisia there were two speeds of growth, and this is one of the reasons for the revolution, that the interior region was behind in terms of development, infrastructure and investments,” Fakhfakh said. “We decided to increase investments in those areas.”

Tunisia’s uprising was triggered after a street vendor set himself on fire to protest poverty and unfair treatment by the regime of Ben Ali. The revolt set off a wave of turmoil in the Middle East, leading to the overthrow of leaders in Egypt, Libya and Yemen, and to the rise of Islamist groups such as Ennahda in Tunisia and the Muslim Brotherhood in Egypt.

Tunisia’s financing plans also include $400 million in so-called Samurai bonds and 1 billion dinars ($626 million) in sukuk, Fakhfakh said. Ministry and central bank officials will meet April 11 to discuss details of the sukuk sale, he said.

Sales of bonds that comply with Islam’s ban on interest surged to a record $21.3 billion among Arab issuers last year, according to data compiled by Bloomberg. Issuance dropped 26 percent in the first quarter to $6.2 billion.

The sukuk sale will help “diversify our debt,” the minister said. “We used to have a conflicting relation with religion, even Islamic finance, under the dictatorship,” he said. “Now we are more open.”

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