Kazakhstan is to launch its first international bond in a decade to bolster its public finances and set a benchmark for companies to return to the capital markets.
Kazakhstan, which last issued a bond aimed at international investors in 2000, plans to issue about $500m in dollar-denominated securities early next year.
A sovereign bond will help companies raise money in the markets as investors are more likely to buy corporate debt when there is a benchmark government bond to compare prices and yields against.
The central Asian country is seeking to take advantage of the surge in demand for emerging market debt, which has depressed the cost of borrowing for emerging market sovereigns and companies.
Emerging market sovereign bond yield spreads have narrowed to 300 basis points over US Treasuries, the international benchmark for debt, from 700bp in late February.
Many other emerging market sovereigns have also started tapping the bond markets with issuance soaring to $72bn since the turn in the markets in March, according to Dealogic. There was little issuance at the start of the year and only one emerging market deal in 2008 after the collapse of Lehman Brothers in September.
Russia, Kazakhstan’s biggest trading partner, recently announced plans to sell new foreign debt for the first time since 1998. Russia has signalled it plans to raise up to $18bn in dollar denominated securities in the first quarter of next year.
Bankers say even countries such as Angola, one of the most risky sovereign investments, may start issuing next year in a sign of this increasing appetite in emerging market bonds.
For Kazakhstan specifically, the move to issue bonds highlights a big change in sentiment. Earlier this year, the country was still struggling to prop up its beleaguered banking system, which came close to breaking down because of the seizing up of the credit markets.
The country has spent $19bn, or 14 per cent of its gross domestic product, propping up its banking system since the end of 2007. The government was forced to take over the country’s largest lender BTA Bank in February.
In the credit default swaps market, the annual cost of insuring Kazakhstan debt against default, has fallen to €245,000 ($367,000) for every €10m of debt over five years from €1.63m in late February, when the central bank was forced to devalue its currency, the tenge.
The central bank is now suggesting the trading band against the dollar could be widened, enabling the currency to appreciate.
Kazakhstan’s economy is growing again with third quarter gross domestic product up 1.5 per cent on the previous quarter. The current account also went back into surplus in the third quarter after two quarters of deficits.
Kazakhstan’s economy shrank 2.3 per cent in the first half of the year as the global credit squeeze forced banks to restructure debt to avert bankruptcy.