First unsupported bond in more than a decade is a milestone for the country seeking to rebuild its economy
Iraq returns to debt market with $1bn offering
Iraq is back in the debt markets with its first unsupported bond in more than a decade, a milestone for the country that is seeking to rebuild its economy after years of political and sectarian strife.
The country is offering US$1 billion of bonds due in 2023 at a yield in the low 7 per cent area, according to a person familiar with the matter, who asked not to be identified. It is Iraq’s second visit to the market this year after a US-backed $1bn bond sold at 2.149 per cent in January.
The offering comes just over three weeks after Iraq declared victory over ISIL in its second-biggest city of Mosul, a turning point in the struggle to end the conflicts that have ravaged the country for more than a decade. In June, the IMF agreed to release an additional $800 million to Iraq after it completes the second review of a stand-by arrangement to restore fiscal and external balance and improve public financial management.
“It’s a good time to sell as the battle for Mosul has been won, oil prices have recovered and the IMF programme has proved a good anchor for fiscal policy,” said Richard Segal, a London-based credit analyst at Manulife Asset Management. “Almost everyone else has finished issuing for the season.”
As government officials met investors in New York on Tuesday, the final stop on a three-day roadshow that also took in London and Boston, the yield on existing Iraqi bonds due in 2028 fell to 6.76 per cent, down from more than 9 per cent late last year.
“It will get done this time around and especially if they price it cheap to the existing 2028,” said Claudia Calich, a money manager at M&G in London who attended the investor roadshow.
“For Iraq, it is still much more attractive funding versus late 2015. The credit is in better footing from a few years ago when they first attempted to issue a Eurobond.”
Iraq, which has the world’s fifth-largest oil reserves, accounting for about 90 per cent of its revenue, has seen its fiscal position improve compared to 2015 and 2016 following a partial recovery in crude prices, Fitch Ratings said in March.
The ratings firm raised its outlook for the country to stable from negative while keeping the headline score at B minus, six levels under investment grade.
Iraq’s sale, arranged by Citigroup, Deutsche Bank and JP Morgan, also coincides with buoyant demand for emerging-country debt from international investors. The average yield on emerging sovereign bonds has fallen more than 30 basis points this year to 4.6 per cent. That’s still more than three percentage points above the yield on debt issued by members of the G7 group of industrialised nations.
“The recent increase in oil prices and investors’ strong appetite for yield provides a supportive backdrop,” said David Blaylock, an investment analyst at Insparo Asset Management in London. “Now is an opportune time for Iraq to issue bonds.”