Kazakhs Drop Planned 2010 Eurobond Sale After $1 Billion World Bank Loan

The Kazakh government canceled a plan to sell as much as $750 million of bonds to investors abroad this year after it secured a $1 billion loan from a World Bank unit, the Finance Ministry said.

“At a scheduled meeting of the government’s Economic Policy Council on July 3, it was decided that issuing sovereign Eurobonds in 2010 would be inexpedient,” the ministry said today in an e-mailed response to questions.

Kazakhstan’s announcement comes days after another former Soviet republic, Ukraine, abandoned plans to sell its first Eurobonds since 2007 after investors demanded higher yields than the government was willing to pay. Central Asia’s biggest oil producer was planning to sell its first foreign bonds in more than a decade this autumn in order to set a benchmark for corporate borrowers.

The ministry cited the loan agreement it signed in May with the International Bank for Reconstruction and Development as a reason for calling off the bond sale. The government will focus on domestic borrowing to cover its budget deficit, forecast at 4.6 percent of gross domestic product in 2010, the ministry said.

“It hints that the country is probably doing well in terms of budget realization, as it is very unlikely they will manage to sell the same amount in the local markets,” said Luis Costa, an emerging-market debt strategist at Citigroup Inc. in London. Kazakhstan is likely to have a budget deficit of 2.7 percent this year and a 1 percent surplus in 2011, he added.

Kazakhstan redeemed its last foreign bonds outstanding -- $350 million of 11.125 percent notes sold in 2000 -- in May 2007, Bloomberg data show. The country’s debt is rated Baa2 by Moody’s Investors Service, its second-lowest investment grade, and one notch lower at BBB- by Standard & Poor’s.

Source: Bloomberg.com