Tajikistan's international bond debut raises $500mn at 7.125%

Tajikistan's international bond debut raises $500mn at 7.125%
The Nurek Dam on Tajikistan's Vakhsh River. If the country can complete the massive Rogun hydropower project with bond proceeds it might secure energy independence.
By bne IntelliNews September 8, 2017

Tajikistan on September 7 raised $500mn from its inaugural international bond. The Eurobond priced at 7.125% for a 10-year term. The poorest state in Central Asia tapped into growing investor interest in comparatively high-yielding sovereign debt from either new or infrequent issuers, analysts said.

The Tajiks initially offered 8% on the deal but the order book soon exceeded $4bn, opening the way to a lower yield.

The proceeds will go towards financing the construction of what will be the world’s tallest dam and the region’s largest hydroelectric project, the $3.9bn Rogun project. It is expected to produce 3,600MW upon the completion of its construction in 2032, although it should start generating some power by the end of 2018 if all goes to plan.

Marcus Ashworth, a Bloomberg Gadfly columnist who was chief markets strategist at Haitong Securities in London, wrote on September 7: “As with Iraq's issue last month, the lure of higher yields and the demands of investing according to index rules look set to override conventional logic.”

He added: This potential yield still looks pretty low. There is no guarantee the $3.9bn [Rogun] project will be completed. It has dragged on for years, and is not expected to be fully operational until 2032. Just $200mn of financing has been put in so far. One thing for sure, though, is that country's ratio of debt to GDP would jump to 57% from 43%. Risky stuff for a tiny economy with little real industry to speak of - it's got one big aluminium plant, a lot of overseas workers' remittances, and not much else.”

Tajikistan’s foreign debt stood at $2.3bn in the first half of 2017, edging up from $2.28bn a year ago. The debt-to-GDP ratio was at 35.8% for the period, slightly below the 35.9% recorded in January-June 2016. The bond issue increases the debt-to-GDP ratio to 50%.

The Tajik government will inevitably fail to lower the level of the country’s foreign debt to below 17.3% of GDP in 2017 as officially planned. According to Tajikistan’s Strategy for Managing Government Debt programme, the country’s foreign debt must not rise above the threshold of 40% in debt-to-GDP.

In late 2016, the Tajik government launched a $490mn bailout for some of Tajikistan’s largest banks hit by an economy blown off course by the recession in Russia and slumping oil prices. Maximilien Lambertson, Central Asia analyst at the Economist Intelligence Unit, said in comments emailed to bne IntelliNews on August 31 that the banks still remain in crisis, adding: “Tajikistan’s banking sector has been in crisis since the collapse in remittances from migrant workers in Russia in 2015-2016.”

Nearly half of Tajikistan’s GDP is reliant on migrant workers’ remittances from Russia. While official figures show relatively stable economic growth of 6% in 1H17, the country has been facing problems posed by its ailing banking sector.

Tajikistan is rated B- by S&P and B3 by Moody’s and both deem the country as having a stable outlook.

Citigroup and Raiffeisen Bank acted as bookrunners for the bond debut.

Italian construction conglomerate Salini Impregilo won the $3.9bn contract to build the Rogun dam. The prospects for the dam, however, do not presently look too bright as only $200mn has been allocated towards the dam so far and its construction has long been stalled. On the other hand, Uzbek President Shavkat Mirziyoyev’s coming to power in neighbouring Uzbekistan has at least temporarily put an end to disputes that contributed to the holding up of the project.

Lambertson wrote that the timescale for Rogun was "ambitious". "Although Salini Impregilo, the Italian firm contracted to build the dam, has stated that two of the dam's planned six turbines will start producing energy by late 2018, we believe that such a timetable is ambitious, particularly given the dam's cost, which is equivalent to almost half of 2015 nominal GDP ($8.2bn)," the analyst said. "Multilateral lenders, including the World Bank, have previously declined to provide financing for the project."

News agencies report that the bond markets have lately seen Iraq raise $1bn with a 5-year, 6.75% bond that was six times oversubscribed despite it being its first bond without a US guarantee for more than a decade. Greece, meanwhile, raised $3bn with its first issue since the onset of its debt crisis. It priced at 4.625%. Belarus took in $1.4bn from a dual-maturity 5- and 10-year tranche bond issuance that took place three months ago, with the 10-year tranche priced at 7.625%, while Ukraine is seeking investors for an inaugural dollar-denominated bond.