Uzbekistan’s sovereign bond debut will be made up of two benchmark-sized $500mn tranches with maturities of 5 and 10 years, officials told fund managers during a roadshow in London.
The country has also let the markets know that it expects to follow up with regular debt sales and that it is anticipated that Uzbek banks will seek funds overseas.
Uzbek Finance Minister Jamshid Kuchkarov on February 12 told some fund managers that the Central Asian country planned another eurobond sale as soon as 2020, according to Reuters, which also quoted Kevin Daly, investment director at Aberdeen Standard Investments, who met the roadshow delegation, as saying: “Debt-to-GDP is at around 20%, and they said they were comfortable if it was as high as 30%.”
The early signs are that Uzbekistan’s debut dollar bond will carry a yield of around 5.375% to 6%. JPMorgan, Citi and Gazprombank are handling the transaction.
“Large amount of liquid assets”
“What makes Uzbekistan stand out to us is a large amount of liquid assets, and when it comes to any eurobond issuance, that it does not need the money at present,” wrote Gregory Smith, a fixed-income strategist at Renaissance Capital.
“Issuing a eurobond is part of Uzbekistan’s re-engagement with the world and quest to encourage more foreign direct investment. A eurobond issue would help create a path to the markets for Uzbek corporates and quasi-sovereigns and give investors an anchor for assessment of country risk.”
Observing that Uzbekistan’s debt load is low and that Central Asia’s most populous country has large foreign-currency reserves, Smith added: “We think this is a good story and we are bullish about Uzbekistan’s transformation.”
Nevertheless, Smith cautioned that state-owned enterprises could cause higher liabilities and that borrowing could leap over the next few years. “Many debut eurobond issuers in 2012 initially looked great to the markets, but after several issues, plus domestic borrowing and large bilateral infrastructure and commercial loans, debt sustainability concerns grew quickly.”
Diversified commodity set-up
Reuters reported fund managers as positive about ex-Soviet state Uzbekistan’s junk-rated credit, citing the country’s diversified commodity set-up: Uzbekistan is rich in natural resources such as gas, gold and other metals and it is also one of the world’s leading exporters of cotton.
Under President Shavkat Mirziyoyev, in power since late 2016 following the death of Islam Karimov—whose 27 years of power left his nation isolated with a stagnant economy beset by high unemployment—has become known as reform-minded. He has taken some steps to open up the economy, such as liberalising the foreign exchange market. Foreign-invested companies can now look forward to repatriating profits.
“It is a good, consistent story, they have the demographics, they are very reform-minded,” another fund manager attending some of the roadshow meetings—held in London, Boston and New York between February 7-14—was quoted as saying by the news agency, adding: “They actually don’t need the financing—but they need to set a benchmark for corporate issuance.”
Two Uzbek banks were planning to tap international markets in the first and second half of 2019, fund managers were reportedly told by officials. Possible lenders are Uzbek Industrial and Construction Bank Joint-Stock Commercial Bank (UPSB), Joint Stock Commercial Bank Asaka, SCM Ipoteka Bank and National Bank of Uzbekistan. The sovereign debt sale was also expected to lay on an opportunity for Uzbek state energy firm Uzbekneftegaz to push ahead with its own debt issuance.
Premium for secrecy
Investors are known to still have significant concern about how secretive Uzbekistan is when it comes to its economy. Very limited data on the country’s key mineral sector is available, for instance. Fund managers say Tashkent will be expected to pay a premium for that secrecy.
One fund manager told Reuters: “We compare it to Azerbaijan, but they need to pay a premium due to their lack of transparency.” Azerbaijan’s dollar-bond maturing in 2024 currently yields 4.3%.
S&P Global Ratings has assigned its ‘BB-’ long-term foreign currency rating to Uzbekistan’s expected first issuance. Similarly, Fitch Ratings assigned Uzbekistan’s upcoming foreign currency-denominated senior unsecured bonds an expected rating of ‘BB-(EXP)’.
Uzbekistan has appointed HSBC banker Odilbek Isakov as the head of its Sovereign and Corporate Debt Division.