Iraq Tightens Pricing on $1 Billion International Bond Sale

(Bloomberg) -- Iraq has set final terms on its first unsupported bond in more than a decade, a milestone for the country that's seeking to rebuild its economy after years of political and sectarian strife.

The country is offering $1 billion of bonds due in 2023 at a yield of 6.75 percent, tightened from earlier guidance of about 7 percent amid orders for almost seven times the issue size, a person familiar with the matter said, asking not to be named because they aren't authorized to speak publicly.

The deal comes just over three weeks after Iraq declared victory over Islamic State in its second-biggest city of Mosul, a turning point in the struggle to end the conflicts that have ravaged the country for more than a decade. In June, the International Monetary Fund agreed to release an additional $800 million to Iraq after it completes the second review of a stand-by arrangement to restore fiscal and external balance and improve public financial management.

“It's a good time to sell as the battle for Mosul has been won, oil prices have recovered and the IMF program has proved a good anchor for fiscal policy,” said Richard Segal, a London-based credit analyst at Manulife Asset Management. “Almost everyone else has finished issuing for the season.”

Meeting Investors

As government officials met investors in New York on Tuesday, the final stop on a three-day roadshow that also took in London and Boston, the yield on existing Iraqi bonds due in 2028 fell to 6.66 percent on Wednesday, down from more than 8 percent at the end of last year. The sale is Iraq's second this year, after a U.S.-backed $1 billion bond sold at 2.149 percent in January.

“It will get done this time around and especially if they price it cheap to the existing 2028,” said Claudia Calich, money manager at M&G Ltd in London who attended the investor roadshow. “For Iraq, it is still much more attractive funding versus late 2015. The credit is in better footing from a few years ago when they first attempted to issue a Eurobond.”

Iraq, which has the world's fifth-largest oil reserves, accounting for about 90 percent of its revenue, has seen its fiscal position improve compared to 2015 and 2016 following a partial recovery in crude prices, Fitch Ratings said in March. The ratings firm raised its outlook for the country to stable from negative while keeping the headline score at B-, six levels under investment grade.

Iraq's sale, arranged by Citigroup Inc., Deutsche Bank AG and JPMorgan Chase & Co, also coincides with buoyant demand for emerging-country debt from international investors. The average yield on emerging sovereign bonds has fallen more than 30 basis points this year to 4.6 percent. That's still more than three percentage points above the yield on debt issued by members of the G7 group of industrialized nations.

“The recent increase in oil prices and investors' strong appetite for yield provides a supportive backdrop,” said David Blaylock, investment analyst at Insparo Asset Management Ltd in London. “The adjusted pricing is unsurprising given the level of investors' interest in the new bonds.”

--With assistance from Khalid Al-Ansary

To contact the reporter on this story: Lyubov Pronina in Brussels at lpronina@bloomberg.net.

To contact the editors responsible for this story: Hannah Benjamin at hbenjamin1@bloomberg.net, Chris Vellacott