Iraq to launch $6bn bond issue in difficult times

ANKARA

Iraq is set to launch a $6 billion bond issue this week, but analysts are warning that investors may not be receptive.

Iraq’s treasury officially announced the planned issuance with a prospectus issued last Wednesday. The date for the sale has not yet been fixed, but it is expected this week.

Citigroup, Deutsche Bank and JPMorgan are managing the country's first bond issuance in nine years. The sale will be divided in three parts, at $2 billion each in dollar-denominated bonds.

"The bonds will certainly bear a long period of maturity," explained Kaan Nazli, an analyst in emerging-market debt with Neuberger Berman investment management firm in London.

Speaking to Anadolu Agency, Nazli added: "But that may not be sufficient to attract investors, as the country has a junk-level rating ['B- from S&P, which is below investment grade].

“And the security issues, the low price of oil – which is Iran's major export – and the current poor investor sentiment with regards to emerging markets should make the sale a challenging one."

Five-year Iraqi credit default swaps, used to insure against a sovereign debt default, are up to near six-year highs at 576 basis points.

Iraq is, however, OPEC's second-largest oil producer, and, as many believe oil prices may come back, the country's credit outlook has strong points, S&P pointed out in a note published on September 10.

Nonetheless, yield will have to be above 10 percent if investors are to be convinced, Nazli said.

Baghdad has said that it will use the funds to cover the country's ballooning budget deficit, which was equal to about three percent of the country's GDP in 2014.