By Josie Cox
Kazakhstan is preparing to tap the international bond market for
the first time in more than a decade, building on a rush of risky
government borrowers that have issued debt in recent months to
satisfy investors' thirst for high returns.
The republic Thursday said that it had mandated three banks to
arrange a five-day series of meetings with investors, with plans to
issue a dollar-denominated bond.
The transaction would be the first such bond from the oil-rich
Russian neighbor since April 2000, when it sold $350 million of
debt that matured in 2007, according to Dealogic.
Michael Gomez, managing director and head of emerging market
portfolio management at Pacific Investment Management Co. in
Newport Beach, California, said investors would likely bite, if the
price is right.
"We expect the offering to be well received, assuming pricing is
appropriate," he said. "Given the turmoil in the region,
geopolitics will be a big part of the discussion and it is quite
sensible that they are doing a roadshow to make sure the market is
properly informed," he added. Mr. Gomez declined to comment on
whether Pimco, which had $1.97 trillion of assets under management
at the end of the second quarter, would be taking part in the
deal.
Other investors said they were drawn by the rarity of this
transaction.
"It is a very rare opportunity and the Kazakhstan story is very
appealing. Of course we are cognizant of political risks, but
generally we're excited about this," said Alex Kozhemiakin, head of
emerging market debt at Standish Mellon Asset Management with $162
billion of assets under management.
He said that it was likely that Kazakhstan would target a
10-year maturity with the deal. For that tenor, he said, the
country would probably have to offer investors a yield in the
region of a little over 4%, based on where debt issued by some
state-owned corporates in the region is trading.
Plans for the country to return to the bond market surfaced last
year, when finance minister Bolat Zhamishev said that Kazakhstan
was aiming to borrow up to $1 billion and asked banks to apply for
mandates.
In a June report, ratings firm Standard & Poor's Corp. said
it remains cautious. "The economy is vulnerable to external shocks,
and little progress has been made in achieving sustainable and
inclusive non-oil growth," credit analyst Ana Jelenkovic wrote,
revising the outlook on the country's BBB+ credit rating to
negative.
But starved of yields on bonds issued by major economies,
investors have proven eager to snap up slightly riskier sovereign
bonds in recent months, helping a string of so-called frontier
markets, considered shakier bets than emerging markets, to sell
bonds at cheap rates. The window of opportunity for borrowers is
likely to close relatively soon; interest rates are expected to
start rising in the U.S. in the first half of next year, pumping up
borrowing costs for all types of debt.
In June, Ecuador sold a larger-than-anticipated $2 billion
10-year bond, which printed with a lower yield than bankers had
expected, even though the country defaulted on its debt just six
years earlier. Rwanda, Ghana, Zambia and Kenya have also issued
bonds.
"Investors are certainly looking for ways to diversify," said
Souhail Mahjour, a debt syndicate manager at HSBC Holdings PLC, one
of the banks mandated to run the Kazakh deal.
Kazakhstan, which is an oil producer as well as a major exporter
of industrial metals, uranium and grain, has a Baa2 credit rating
with Moody's Investors Service Inc. and a BBB+ rating with Fitch
Ratings, in line with S&P's. HSBC, Citigroup and J.P. Morgan
have been mandated to sell the planned bond.
Investor meetings are due to kick off Sept. 29 in London before
moving to New York, Boston and San Francisco and concluding in Los
Angeles on Oct. 3, according to a person familiar with the matter.
A transaction is likely hit the market early the following
week.
Emese Bartha in Frankfurt contributed to this item.
Write to Josie Cox at josie.cox@wsj.com