Kazakhstan completes first ever Eurobond sale.

Kazakhstan  Eurobond sale. Kazakhstan sold a dual tranche transaction consisting of €525mn of a 1.55% Eurobond due in November 2023 and €525mn of a 2.375% bond due in November 2028. There was strong demand for the bonds with an order book which exceeded €3.3bn compared to the €1.05bn of bonds made available. Intellinews.com earlier reported.

The move marked the first time that a euro-denominated transaction came from the Kazakh sovereign. The Eurasian country is among some emerging market countries to have switched to euros due to the ever-growing gap between US and European interest rates.

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Kazakhstan has generally prioritized dollar sales for the past 20 years with its dollar debt in July 2015 hitting $4bn in both10-year and 30-year notes. Kazakhstan’s foreign currency debt ratings are BBB with a stable outlook from Fitch, BBB- (stable) from S&P and Baa3 (stable) from Moody’s.

The European Central Bank has said it currently has no plans to tighten borrowing costs until next summer, whereas the US Federal Reserve has suggested interest rate tightening is around the corner.

“Euros make a lot of sense; the ECB will remain dovish in contrast to the Fed,” Richard Segal,  senior analyst at Manulife Asset Management in London, told Bloomberg.

Kazakhstan last sold dollar debt in July 2015, when it raised a record $4bn in 10-year and 30-year notes. Astana is more and more looking at expanding the geography of its borrowing, with plans also including yuan-denominated securities.

Citigroup Societe Generale and BCC Invest helped to broker investor meetings for the Kazakhstan Eurobond sale in Europe and London.

Rating agencies have noted their appreciation of Kazakhstan’s inflation targeting practices and its strong economic recovery, which was partly driven by the recovery in world oil prices. Kazakh growth rebounded to 4% in 2017, up from 1% in 2016, and continued to stand at 4% in the first nine months of 2018.

The recovery is partly thanks to Central Asia’s largest economy focusing on increasing its bet on foreign investment and diversification, which seems to be paying off. Much of that foreign investment is stemming from China’s One Belt One Road modern trade infrastructure initiative, which has resulted in newly launched and ongoing projects with the aim of raising Kazakhstan’s transit potential for Chinese goods going to Europe.

Bad Times in Banking

Following the Kazakhstan Eurobond sale the International Monetary Fund has lambasted the Kazakh sovereign for not doing enough in restructuring and reorganizing its local banks. The recent injections of capital may prove insufficient for removing systemic risk going forward. 

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“We believe that a strong cash position of the sovereign underpinned by fiscal prudency and a higher oil price as well as good macro management can bring a positive outlook and a one-notch upgrade for Kazakhstan in 2019,” Raiffeisen Bank International (RBI) noted. “Nevertheless banking sector problems may affect the upgrade probability for next year if rating agencies conclude that the banking system outlook undermines sovereign financial stability.”

Legacy issues are still be troubling the Kazakh banking sector despite last year’s hefty $7.5bn bailout by the state. The country’s second-largest lender, Tsesnabank, recently received €1.1bn in support from the central bank. It also appears to be exposed to bad loans in the agricultural sector, a Government priority and a key area for diversification away from an over-dependence on oil exports.


Some small banks in the country, including Qazaq Banki and Kazakhstan Eximbank, were not so lucky as to benefit from last year’s bailout. They received no state support and have been continuously lambasted by top officials for lousy performance. Their licenses were since revoked.

The Kazakh banking sector—still not fully recovered from the 2008-09 financial crisis—has been hit by a rise in bad loans since the slump in world crude oil prices and the tenge free-float in 2015, which depressed the entire Kazakh economy for two years until it switched trajectory and headed for recovery in 2017. The bailing out of Kazakhstan’s largest banks included a merger deal between KKB and Halyk, turning Halyk into the largest Kazakh lender.

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RBI International analysts said last week that their “current recommendation on Kazakh Eurobonds is ‘Hold’ taking into account the latest macro improvements while the medium-term outlook is positive due to a stronger likelihood of a positive re-rating of Kazakhstan by the leading rating agencies in 2019”.

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