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Kazakh corporate bond yields fell on October 7 after the government returned to global capital markets with its first dollar-denominated Eurobond issue in 14 years. Good demand for the $2.5bn issue and the low yields achieved are expected to provide a new benchmark for Kazakh corporate bond issuers such as state oil and gas firm KazMunaiGas.

Kazakhstan issued 10-year Eurobonds worth $1.5bn and 30-year bonds worth $1bn on October 6. The 10-year bonds were priced to yield 4.07%, with a spread of 150 basis points over mid-swaps, and the 30-year bonds had a yield of 5.11% (with a spread of 200 basis points).

In response, Bloomberg said that the yield on KazMunaiGas' 10-year and 30-year Eurobonds worth a combined $3bn issued in 2013 fell by 0.15 percentage point to 4.56% and 0.14 percentage point to 5.92% respectively on the news. The yields are more than 1 percentage point lower since their January highs, Bloomberg added.

“Bearing in mind high demand from investors [for the Kazakh Eurobond] we expect the yields of corporate Eurobonds to fall by 20-30 basis points,” said Sabina Amangeldy, an analyst at the Almaty-based investment bank Halyk Finance.

Investors showed high interest in the sovereign Eurobond, which attracted bids to the tune of $11bn. Citigroup, HSBC and JPMorgan Chase arranged the sale. Kazakhstan holds a 'Baa2' rating with a positive outlook from Moody’s, and a 'BBB+' rating from Standard & Poor’s (negative outlook) and Fitch Ratings (stable outlook).

Previously the Kazakh government issued seven-year Eurobonds worth $300m in April 2000. The government planned to issue Eurobonds in 2010, but abandoned the plans because of market conditions and obtained a $1bn loan from the World Bank instead.

“The Finance Ministry used a favourable situation of low interest rates to fund budget deficit ahead of an anticipated increase in rates in the first half of 2014,” wrote Amangeldy in a commentary on October 7. The analyst noted that the Kazakh Finance Ministry increased borrowing in the fourth quarter when transfers from the National Oil Fund dry out. “Another reason is to set a benchmark for corporate issuers.”

In February the country’s sovereign wealth fund Samruk-Kazyna, which manages state-owned assets including KazMunaiGas, said that its subsidiaries would need to raise over $2bn in global capital markets.