Iraq plans to obtain a sovereign credit rating and is approaching rating agencies as it prepares for a jumbo $5 billion bond issue needed to cover a budget deficit caused by low oil prices, its finance minister said yesterday.
“We started the process,” Hoshiyar Zebari told Reuters by telephone. “The banks are also trying to help us in that direction.”
Iraq has said it will issue $5 billion of debt in its first international bond sale for nine years. Its need for cash is acute: the government has projected a budget deficit of about $25 billion this year, in a budget of roughly $100 billion.
Obtaining a credit rating from a major agency, which Iraq currently lacks, could help to persuade global fund managers and banks to subscribe to the issue.
Zebari said Iraq was trying to approach two or three rating agencies, which he did not name. It has been discussing its bond issue plan with Citibank and Deutsche Bank.
The process of obtaining a credit rating could be a delicate one for Iraq, requiring it to open its books to the agencies and disclose new information on its finances.
Iraq’s huge oil reserves in its southern fields, which have not been touched by the Islamic State insurgency, are expected to draw buyers to its bonds. But many fund managers think it would struggle to sell $5 billion in a short space of time, even with generous pricing.
Asked if $5 billion was too ambitious, Zebari said: “We have in the budget a commitment to issue $6 billion. So this is the low – this is how we plan to cover our deficit. But there’s no way we can do it in one tranche.”
Iraq has an outstanding US dollar bond maturing in 2028; panic selling late last year as oil prices plunged pushed its yield to a record high of 10.49 per cent from around 7.2 per cent in September, but it has since dropped back to 8.04 per cent.
Iraqi five-year credit default swaps, used to insure against any sovereign default, are at 539 basis points, near their highest levels since late 2009.
Iraq has introduced other fiscal measures including a local currency bond issue to banks, taxes on some consumer goods and public wage cuts. It has also been considering whether to ask for aid from the IMF.