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Megameallionear:  Iraq to issue $2 billion Eurobonds in 2016 with World Bank guarantees

BAGHDAD | BY STEPHEN KALIN

Iraq plans to issue $2 billion worth of international bonds in 2016 with World Bank guarantees for up to half that amount, its central bank governor said on Wednesday.
The move comes after high yields forced the government to halt a bond issuance earlier this year.

Ali al-Alak predicted in an interview with Reuters that the new bond’s yield would be “much less” than the 11.5 percent demanded by investors during a roadshow in Europe and the United States in September, but did not speculate further.

“It will be $2 billion but they (the World Bank) will guarantee let’s say 40 or 50 percent of that,” Alak said. “That will open the market more – make it wider – to attract more investors.”
He said Baghdad had factored the bond into next year’s budget in order to finance a fiscal deficit estimated at $21 billion out of a roughly $95 billion budget.

The extremely high yields demanded for an initial $2 billion U.S. dollar-denominated issue earlier in the year would have been financially burdensome for Iraq, a major OPEC oil exporter.

Baghdad, which is battling Islamic State militants and faces shrinking oil revenues due to low crude prices, had said it needed the proceeds of the bond to pay salaries and fund infrastructure projects in the oil and gas, electricity and transportation sectors.

Iraq hired three top global banks to arrange the sale, Citigroup, Deutsche Bank and JP Morgan Chase, but many institutional investors baulked at the risks.
A source close to the deal said the government has asked the same banks to prepare a roadshow for next year’s issuance.

Mudher Saleh, a top economic adviser to Prime Minister Haider al-Abadi, said the yield would depend on the extent of the World Bank’s involvement.

Guaranteeing 75 percent, for example, would drop the yield to 5 or 6 percent, he said. He did not provide an estimate for a guarantee of 40 to 50 percent.

Standard & Poor’s has assigned Iraq a B-minus credit rating, six notches below investment grade, saying security and institutional risks were among the highest of any sovereign it assesses, on par with Egypt and above Greece.

Iraq agreed last week to a program which would have the International Monetary Fund monitor Baghdad’s economic policies as a basis for a possible funding program in 2016.

(Additional reporting by Hadeel al Sayegh in Dubai Editing by Jeremy Gaunt)

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