Kazakhstan Plans to Sell First Foreign Bond in Decade

Kazakhstan plans to offer its first foreign-currency bonds in a decade next year, joining Russia in seeking to lure back investors as rising energy prices spur the former Soviet region's economic recovery.

Central Asia's biggest energy producer may borrow about $500 million, Altyn Tenizbayeva, head of the finance ministry's debt department, said in an interview today.

Kazakhstan has spent $19 billion, or 14 percent of its gross domestic product, propping up its banking system and economy since the end of 2007 as a freeze in credit markets and sliding commodity prices forced the government to take over the country's largest lender, BTA Bank, in February. That drove the cost of credit-default swaps linked to government debt to a peak of 1,650 basis points, the fifth highest worldwide after Ukraine, Ecuador, Venezuela and Pakistan. The contracts have since dropped to 246 basis points.

"Kazakhstan's CDS speak for themselves," said Luis Costa, emerging markets debt strategist at Commerzbank AG in London. "The country was so far very successful in isolating the BTA problems from any sort of sovereign contagion. There will be appetite for a sovereign deal."

The cost of default swaps on Kazakhstan is now lower than the 308 basis points for Dubai, which last month raised $1.93 billion in a sale of Islamic bonds. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a country fail to adhere to its debt agreements. A basis point equals $1,000 on a contact protecting $10 million from default for five years.

Russian Sale

Kazakhstan doesn't have outstanding foreign-currency bonds, according to Bloomberg data, after it redeemed its last notes in 2007.

"The ministry of finance is planning to access foreign debt markets next year to set a benchmark" that will help the country's corporations to price bonds, Finance Minister Bolat Zhamishev said at a cabinet meeting in Astana.

Russia, Kazakhstan's biggest trading partner, plans to sell new foreign debt for the first time since 1998 next year to help plug its budget deficit. Although the country may raise as much as $17.8 billion, the actual sale may be less should the price of oil remain above $58 a barrel, Finance Minister Alexei Kudrin said in London last week after meeting investors.

Kazakhstan's $132 billion economy shrank 2.3 percent in the first half of the year as the global credit squeeze forced banks to restructure debt to avert bankruptcy. The budget deficit for next year is forecast to be 4.1 percent, according to government data.

bloomberg.com