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Kazakhstan Sells First Overseas Dollar Bonds in 14 Years

Kazakhstan Sells First Overseas Dollar Bonds in 14 Years

Kazakhstan issued $2.5 billion of 10-and 30-year bonds yesterday in what was the nation’s first dollar-denominated overseas sale since 2000.

Kazakhstan sold $1.5 billion of 10-year dollar bonds to yield 1.5 percentage points above midswaps and $1 billion of 30-year debt at 2 percentage points over midswaps, according to Bloomberg data. The central Asian nation drew bids for $11 billion, according to a person familiar with the matter who asked not to be identified because he’s not authorized to speak publicly.

With a BBB+ rating from Standard & Poor’s and Fitch Ratings, the third-lowest investment grade, Kazakhstan is returning to debt markets after a more than 14-year break to benefit from lower borrowing costs. The nation comes to the market after the International Capital Market Association changed sovereign bond contracts to prevent a repeat of the wrangling that has marred restructuring of Argentina’s debt.

“Our primary objective was to set a sovereign benchmark that fairly reflects years of progressive economic reforms, strength of the government balance sheet and our focus on further diversification of the economy,” Bakhyt Sultanov, the nation’s finance minister, said in an e-mailed statement. “We established a proper, liquid and long term sovereign curve to be used by new investors that we would welcome to the country.”

Longer-Term Securities

Citigroup Inc., HSBC Holdings Plc and JPMorgan Chase & Co. arranged the sale, which had originally included five-year notes, the person said. Investors instead demanded longer-term securities to help build out the nation’s yield curve, he said.

Kazakhstan’s longest-term debt to date was a seven-year note sold in 2000. By offering a 30-year note, it joins Bahrain, Colombia, South Africa, Indonesia and Romania, which issued bonds of the same maturity.

“From the Kazakh perspective, it will be helpful to set up a long-tenor benchmark for state-owned borrowers,” Richard Segal, the London-based head of international credit strategy at Jefferies International Ltd., said by e-mail yesterday.

The yield on 30-year dollar bonds of KazMunayGas National Co., the country’s oil and gas company, fell 0.14 percentage point yesterday to 5.92 percent. The yield on its 10-year note fell 0.15 point to 4.56 percent. Yields on both bonds have fallen more than 1 percentage point since their Jan. 31 highs.

The average yield on emerging-market sovereign bonds has fallen 38 basis points from this year’s high of 5.399 percent on Feb. 3, the Bloomberg Dollar Emerging Markets Sovereign Bond Index shows.

‘Encouraging’ Option

ICMA, which represents about 450 investment banks, asset managers and debt issues, in August announced changes to standard collective action clauses, which allow a qualified majority of investors to agree to changes in their bond contracts that bind all bondholders. Kazakhstan includes the revised provisions, which provide alternative procedures for a debt restructuring, according to a copy of its bond prospectus obtained by Bloomberg News.

“Kazakhstan will be among the first countries to sell sovereign bonds that adhere to the new rules created in response to Argentina’s default,” Jeremy Grant, capital markets lawyer at Linklaters LLP in London, said by e-mail. “It’s encouraging that the government has adopted the recommended alterations, including the option of binding investors to a single vote across all bonds.”.

The net proceeds from the sale will be used for general budgetary purposes including financing the state budget deficit, according to the prospectus. The budget deficit as a percentage of total gross domestic product is forecast to decrease to 2.2 percent next year from 2.3 percent this year.

The economy of Kazakhstan, the second-biggest energy producer after Russia among the former Soviet republics, grew 3.9 percent year-on-year in the second quarter, accelerating from a 3.8 percent pace in the previous period. Kazakhstan’s total public debt stood at 12.2 percent of GDP as of June 30.