Iraq Plans Bond as 3.3 Million Barrels a Day Gushes: Arab Credit

[MrOptimistic]

An oil refinery stands in Kirkuk, north of Baghdad. Iraq is pumping 3.3 million barrels a day amid attacks that killed more people in the first nine months of this year than in all of 2012. Photographer: Marwan Ibrahim/AFP/Getty Images
 

Iraq plans to sell bonds for the first time since 2006 as surging oil revenue pushes borrowing costs lower even as sectarian violence in the nation escalates.

“We formed a committee to decide on the details for the bond issue, which will most probably be of medium- to long-term maturity,” Deputy Finance Minister Fadhel Nabi said in an Oct. 22 phone interview from Baghdad. “The joint committee from the Finance Ministry and the central bank will also decide on the timing, which can be within a year,” he said, declining to give more details.

 

Iraq, with the world’s fifth-largest oil reserves, boosted income from crude sales by 23 percent from June to August and earned $6.5 billion in September, data compiled by Bloomberg show. The country is pumping 3.3 million barrels a day amid attacks that killed more people in the first nine months of this year than in all of 2012. Government debt as share of gross domestic product should drop to 25 percent this year from about 800 percent a decade ago, Standard Chartered Plc (STAN) said Oct. 20.

The extra yield investors demand to hold Iraq’s dollar bonds rather than Treasuries has tumbled 143 basis points, or 1.43 percentage points, since this year’s June 25 peak to 510 basis points today, according to JPMorgan Chase & Co.’s EMBI Global indexes. The spread between Treasuries and Middle Eastern bonds narrowed by 37 basis points in the period.

Attractive Yield

 

“Iraq’s yield is very attractive, underpinned by strong government finances and a fiscal position,” said Ahmad Alanani, Dubai-based director for the Middle East at Exotix Ltd. “I’d take Iraq risk today over some of the more vulnerable places in the Middle East.”

 

The yield on Iraq’s 5.8 percent dollar bond maturing in January 2028 dropped to 7.277 percent today from a high for this year of 8.803 percent on June 24, according to data compiled by Bloomberg. The bond began trading at about 9 percent in 2006.

 

Iraq issued $2.7 billion in securities to help restructure debt accumulated during the era of former President Saddam Hussein. The bond is the country’s only dollar-denominated debt and equates to about 1.2 percent of 2012 gross domestic product, Geoffrey Batt, managing director of the $82 million Euphrates Iraq Fund, said in an Oct. 22 e-mail.

“It’s tiny compared to Iraq’s financial resources, and there’s little doubt the country can meet its obligations,” he said.

Easier Borrowing

As government borrowing continues falling as a share of GDP, Iraq may find it easier to return to capital markets, particularly for long-term infrastructure projects, Standard Charteredsaid in its report this week.

 

Nabi, the deputy finance minister, confirmed in his interview that Iraq’s next bond would help pay to rebuild infrastructure damaged by decades of war and sanctions.

Even so, the government’s plan for a second bond is less than certain. Iraq said more than two years ago, in July 2011, that it would come to market in a year.

Iraq’s efforts to rebuild its economy 10 years after the U.S.-led invasion that ousted Hussein are hobbled by political in-fighting and sectarian strife. A dispute between the central government and the semi-autonomous Kurdish region led the Kurds to suspend oil exports through a national pipeline in December.

Growth Forecast

The International Monetary Fund scaled back its forecast for Iraq’s 2013 economic growth rate to 3.7 percent from an initial estimate of 9 percent, according to the IMF’s website. The economy will still expand fast enough to lead the Middle East by 2018 with projected growth of 9.6 percent, the IMF said.

 

Car-bombings and other acts of violence, aggravated by the civil war in neighboring Syria, have intensified this year, leaving about 5,740 people dead through September, according to the United Nations Assistance Mission in Iraq. The Iraq Body Count, an unofficial website, estimates that 4,574 were killed in all of 2012.

“There is an element of investor complacency or apathy,” said Alanani of Exotix. “Investors are shrugging away all the violence and disturbances.”

Exxon Mobil Corp. (XOM), OAO Lukoil (LKOH) and other oil companies helped Iraq boost production by 24 percent in 2012 and become the second-largest producer in the Organization of Petroleum Exporting Countries. The government is increasing spending by 18 percent this year to $118 billion.

Iraq is poised to restore export capacity to about 2.5 million barrels a day from its southern port of Basra, after maintenance work and bad weather cut shipments, Deputy Prime Minister Hussain Al-Shahristani said Oct. 16. It will increase this capacity to 4 million barrels by the end of March after completing a fourth floating terminal, he said.

“Despite the violence, the market can absorb a new issuance from Iraq, and there will be demand for it,” Alanani said.

To contact the reporter on this story: Nayla Razzouk in Dubai at nrazzouk2@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

 

http://www.bloomberg.com/news/2013-10-24/iraq-plans-bond-as-3-3-million-barrels-a-day-gushes-arab-credit.html

For those who want a better understanding of "Bonds" here is a quick educational video:

http://www.investopedia.com/video/play/understanding-bonds/

Edited October 25, 2013 by MrOptimistic

[jg1]

Stop barrowing money, this is not going to help the value of the dinar or your people. Increase in money supply = decrease in value

[MrOptimistic]

Stop barrowing money, this is not going to help the value of the dinar or your people. Increase in money supply = decrease in value

That just doesn't make any sense at all, Currency is used as a debt instrument to help provide funding for public/government development projects to promote future prosperity. Currently the dinar is pegged to the #1 debt instrument, the USD. Also these bonds(loans) will help promote investment from other countries (Iraq going international).

[MrOptimistic]

“We formed a committee to decide on the details for the bond issue, which will most probably be of medium- to long-term maturity,” Deputy Finance Minister Fadhel Nabi said in an Oct. 22 phone interview from Baghdad. “The joint committee from the Finance Ministry and the central bank will also decide on the timing, which can be within a year,” he said, declining to give more details.
 

Medium to long term maturity: Medium-term is 5-12 years, Long-term 12-30 years

[jg1]

Ok, barrow away. Just like the US, and they are doing well too.

[MrOptimistic]

Ok, barrow away. Just like the US, and they are doing well too.

My question for the Finance Committee is; Are they are going to issue the new Bond in USD like they did in 2006 or will they issue it in IQD?

[BelievingInTheBest]

Aren't bonds a way to reduce liquidity or money supply? Reducing the money supply is good for us as it increases the value of our dinar.

[MrOptimistic]

Aren't bonds a way to reduce liquidity or money supply? Reducing the money supply is good for us as it increases the value of our dinar.

CBI sells bonds to banks. By purchasing bonds from the CBI, banks have less money to loan out and the monetary base shrinks.

These Bonds are issued in USD, which the CBI can use USD to buy IQD from local banks through currency auctions reducing the supply of IQD.

 

Edited October 25, 2013 by MrOptimistic

[jg1]

CBI sells bonds to banks. By purchasing bonds from the CBI, banks have less money to loan out and the monetary base shrinks.

Ok, thanks for the lesson in bonds. I misunderstood. I want less money supply, that's all. I think that would help us. Thanks again.

[rockfl9]

The bonds will be offered by the MOF(treasury) NOT the CBI! It says they will be in dollars not dinar...To sell bonds for dollars and expect to repay in dinar is very risky , who would do that?

[MrOptimistic]

The bonds will be offered by the MOF(treasury) NOT the CBI! It says they will be in dollars not dinar...To sell bonds for dollars and expect to repay in dinar is very risky , who would do that?

Yes, but where does the money go? The pockets of the Ministry of Finance ministers? or the Central Bank of Iraq? They sell Bonds in USD and increase USD reserves, which allows for more USD to be used in auctions to reduce the supply of IQD in the market. I didn't say they were repaying in Dinar. 

 

The MoF works side by side with the CBI in the process of the currency auctions.

 

I appreciate your question 

Edited October 25, 2013 by MrOptimistic

[rockfl9]

No bond money will go into the CBI reserves! The bonds will be guaranteed by the MOF and used to jump start GOI projects...Basically they will be mortgaging their future . It could be good business , BUT I believe most will be wasted.

[MrOptimistic]

No bond money will go into the CBI reserves! The bonds will be guaranteed by the MOF and used to jump start GOI projects...Basically they will be mortgaging their future . It could be good business , BUT I believe most will be wasted.

7/8/2004

BAGHDAD — Iraq's first bond market will open this month, a move designed to ensure that the Iraqi government won't repeat Saddam Hussein's ruinous economic policies.

The beginning of Iraq's currency auctions:

At the first bond auction, scheduled for July 18, Iraqi banks can bid for about 150 billion dinars (a little more than $100 million) worth of government debt, the finance ministry announced Wednesday.

 

The Ministry of Finance is authorized under the "Public Debt Law" to issue obligations guaranteed by the government of Iraq. The Central Bank of Iraq, as fiscal agent of the Ministry of Finance is authorized to conduct auctions for government debt securities on behalf of the Ministry of Finance. The Ministry of Finance issues government debt securities to finance the government of Iraq, subject to the limits of the "Annual Budget Law".

 

So is the reduction of Iraq's debt(hyper inflation) not a big government project?

[MrOptimistic]

No bond money will go into the CBI reserves! The bonds will be guaranteed by the MOF and used to jump start GOI projects...Basically they will be mortgaging their future . It could be good business , BUT I believe most will be wasted.

It doesn't go directly into reserves, but it helps with the auctions.

[rockfl9]

7/8/2004

BAGHDAD — Iraq's first bond market will open this month, a move designed to ensure that the Iraqi government won't repeat Saddam Hussein's ruinous economic policies.

The beginning of Iraq's currency auctions:

At the first bond auction, scheduled for July 18, Iraqi banks can bid for about 150 billion dinars (a little more than $100 million) worth of government debt, the finance ministry announced Wednesday.

 

The Ministry of Finance is authorized under the "Public Debt Law" to issue obligations guaranteed by the government of Iraq. The Central Bank of Iraq, as fiscal agent of the Ministry of Finance is authorized to conduct auctions for government debt securities on behalf of the Ministry of Finance. The Ministry of Finance issues government debt securities to finance the government of Iraq, subject to the limits of the "Annual Budget Law".[/size]

 

So is the reduction of Iraq's debt(hyper inflation) not a big government project?

Those "bonds' are 3,6,12 treasury NOTES... The MOF has been using them to fund projects in advance of revenues for short periods.

It is an indication that the MOF does not have a stash of dollars building up over the years. It has been spending every dollar that comes

in as fast as it can.

[MrOptimistic]

Those "bonds' are 3,6,12 treasury NOTES... The MOF has been using them to fund projects in advance of revenues for short periods.

It is an indication that the MOF does not have a stash of dollars building up over the years. It has been spending every dollar that comes

in as fast as it can.

They have been doing A LOT of reconstruction. IMO the auctioning of bonds allows liquidity for the contraction of IQD. 

[BelievingInTheBest]

They have been doing A LOT of reconstruction. IMO the auctioning of bonds allows liquidity for the contraction of IQD. 

That is my opinion as well. And makes most sense. They want the dinar to be a strong / hard currency and a reserve currency throughout the world. It needs value, a controlled supply and a strong demand. All things Iraq is working on. Contracting the IQD (reducing the supply) through the bonds is a part of the bigger picture. Getting the dinar into other countries and having trade agreements with many other countries helps to increase the demand and volume of dinar flowing in the world markets.  

[dontlop]

Iraqi govt intending to use United States dollars to pay to rebuild infrastructure ?

I thought Iraqi govt used dinars for that

All the dinar in existance has its value is covered by reserves

With 2 and a half. Times surplus on the reserves according to some

The dinar is owned by the Iraqi govt the cbi reserves are owned by the Iraqi govt

What will the mof do with all those dollars they hope to collect from the private sector

Will they issue more dinar ?

Or Will they make this dinar more valuable rv ?

To sell bonds in dollars so the mof can give them to cbi to just auction them off to get dinar to pay workers in dinar doesn't make sense

For some reason the mof wants more dollars

Maybe from out side investors

Could the mof offer bonds to India?

Or Mexico

Or anyone

Or just banks in Iraq

If they want those dollars out of the banks they will eventually end up back in the cbi reserves backing dinar for the goi they may be replaced with a higher valued dinar

Which will be backed by the very dollars they bought the bonds with

[skeetdog]

Sounds like the US wants to be the Federal Reserve for Iraq...Why not, the US is printing money out of thin air...what's the differance in that an a IOU debit?

[millionaire in training]

Wow Mr Opti you do know your stuff. Thanks for explaining it to us. Great to have minds like yours in the forum.    

[dontlop]

CBI sells[/size] bonds to banks. By purchasing bonds from the CBI, banks have less money to loan out and the monetary base shrinks.[/size]These Bonds are issued in USD, which the CBI can use USD to buy IQD from local banks through currency auctions reducing the supply of IQD.[/size]

That's a a good possibility

To temporarily remove some dollars from banks through bonds sold in dollars

And then they further dollarize buying up even more dinar than they do with just daily auctions

It could be used in cooperation with banks in reverse to de dollarize also with a higher valued dinar

Thos dollars in circulations value is not being applied to the value of the Iraqi dinar

Only those in the reserves are used to back those dinars

So you add more dollars to backing the dinars

The dinars value has to go up well t doesn't have to but it can

As long as you don't add new dinars

Dollars can be created at a bank within the federal reserve system on your signiture

I guess dinars can be created the same way within the cbi system

Buying gold with those dollars since gold prices are so unstable is not good for reserves backing your currency

Then others control you with gold market minipulations

Fiat is the way to go

Value by decree

Credit rating System ,,,,,,,,,,,,,,, no honor system

Either you pay your bills or you don't

Edited October 26, 2013 by dontlop

[MrOptimistic]

That's a a good possibility

To temporarily remove some dollars from banks through bonds sold in dollars

And then they further dollarize buying up even more dinar than they do with just daily auctions

It could be used in cooperation with banks in reverse to de dollarize also with a higher valued dinar

Thos dollars in circulations value is not being applied to the value of the Iraqi dinar

Only those in the reserves are used to back those dinars

So you add more dollars to backing the dinars

The dinars value has to go up well t doesn't have to but it can

As long as you don't add new dinars

Dollars can be created at a bank within the federal reserve system on your signiture

I guess dinars can be created the same way within the cbi system

Buying gold with those dollars since gold prices are so unstable is not good for reserves backing your currency

Then others control you with gold market minipulations

Fiat is the way to go

Value by decree

Credit rating System ,,,,,,,,,,,,,,, no honor system

Either you pay your bills or you don't

The Dinar is Fiat. The CBI is the authoritative power that determines the value of the Dinar. That is why it doesn't actually move up or down in value. What we are waiting for is the CBI to allow a commodity to back the dinar (ie:Oil). This will allow the market to determine the exchange rate of the Dinar. Look at oil prices for the last 60 years. There is a lot of demand currently for oil to keep it highly valued for years to come and Iraq has the largest quantity of cheap extractable oil that will soon be all over the market. Once the Dinar moves from fiat to commodity backed we will see the true value of the Dinar.

 

If you were the CBI and you looked at this chart. Would you back your dinar by oil?

[Djorgie]

 

An oil refinery stands in Kirkuk, north of Baghdad. Iraq is pumping 3.3 million barrels a day amid attacks that killed more people in the first nine months of this year than in all of 2012. Photographer: Marwan Ibrahim/AFP/Getty Images

 

Iraq plans to sell bonds for the first time since 2006 as surging oil revenue pushes borrowing costs lower even as sectarian violence in the nation escalates.

“We formed a committee to decide on the details for the bond issue, which will most probably be of medium- to long-term maturity,” Deputy Finance Minister Fadhel Nabi said in an Oct. 22 phone interview from Baghdad. “The joint committee from the Finance Ministry and the central bank will also decide on the timing, which can be within a year,” he said, declining to give more details.

 

Iraq, with the world’s fifth-largest oil reserves, boosted income from crude sales by 23 percent from June to August and earned $6.5 billion in September, data compiled by Bloomberg show. The country is pumping 3.3 million barrels a day amid attacks that killed more people in the first nine months of this year than in all of 2012. Government debt as share of gross domestic product should drop to 25 percent this year from about 800 percent a decade ago, Standard Chartered Plc (STAN) said Oct. 20.

The extra yield investors demand to hold Iraq’s dollar bonds rather than Treasuries has tumbled 143 basis points, or 1.43 percentage points, since this year’s June 25 peak to 510 basis points today, according to JPMorgan Chase & Co.’s EMBI Global indexes. The spread between Treasuries and Middle Eastern bonds narrowed by 37 basis points in the period.

Attractive Yield

 

“Iraq’s yield is very attractive, underpinned by strong government finances and a fiscal position,” said Ahmad Alanani, Dubai-based director for the Middle East at Exotix Ltd. “I’d take Iraq risk today over some of the more vulnerable places in the Middle East.”

 

The yield on Iraq’s 5.8 percent dollar bond maturing in January 2028 dropped to 7.277 percent today from a high for this year of 8.803 percent on June 24, according to data compiled by Bloomberg. The bond began trading at about 9 percent in 2006.

 

Iraq issued $2.7 billion in securities to help restructure debt accumulated during the era of former President Saddam Hussein. The bond is the country’s only dollar-denominated debt and equates to about 1.2 percent of 2012 gross domestic product, Geoffrey Batt, managing director of the $82 million Euphrates Iraq Fund, said in an Oct. 22 e-mail.

“It’s tiny compared to Iraq’s financial resources, and there’s little doubt the country can meet its obligations,” he said.

Easier Borrowing

As government borrowing continues falling as a share of GDP, Iraq may find it easier to return to capital markets, particularly for long-term infrastructure projects, Standard Charteredsaid in its report this week.

 

Nabi, the deputy finance minister, confirmed in his interview that Iraq’s next bond would help pay to rebuild infrastructure damaged by decades of war and sanctions.

Even so, the government’s plan for a second bond is less than certain. Iraq said more than two years ago, in July 2011, that it would come to market in a year.

Iraq’s efforts to rebuild its economy 10 years after the U.S.-led invasion that ousted Hussein are hobbled by political in-fighting and sectarian strife. A dispute between the central government and the semi-autonomous Kurdish region led the Kurds to suspend oil exports through a national pipeline in December.

Growth Forecast

The International Monetary Fund scaled back its forecast for Iraq’s 2013 economic growth rate to 3.7 percent from an initial estimate of 9 percent, according to the IMF’s website. The economy will still expand fast enough to lead the Middle East by 2018 with projected growth of 9.6 percent, the IMF said.

 

Car-bombings and other acts of violence, aggravated by the civil war in neighboring Syria, have intensified this year, leaving about 5,740 people dead through September, according to the United Nations Assistance Mission in Iraq. The Iraq Body Count, an unofficial website, estimates that 4,574 were killed in all of 2012.

“There is an element of investor complacency or apathy,” said Alanani of Exotix. “Investors are shrugging away all the violence and disturbances.”

Exxon Mobil Corp. (XOM), OAO Lukoil (LKOH) and other oil companies helped Iraq boost production by 24 percent in 2012 and become the second-largest producer in the Organization of Petroleum Exporting Countries. The government is increasing spending by 18 percent this year to $118 billion.

Iraq is poised to restore export capacity to about 2.5 million barrels a day from its southern port of Basra, after maintenance work and bad weather cut shipments, Deputy Prime Minister Hussain Al-Shahristani said Oct. 16. It will increase this capacity to 4 million barrels by the end of March after completing a fourth floating terminal, he said.

“Despite the violence, the market can absorb a new issuance from Iraq, and there will be demand for it,” Alanani said.

To contact the reporter on this story: Nayla Razzouk in Dubai at nrazzouk2@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

 

http://www.bloomberg.com/news/2013-10-24/iraq-plans-bond-as-3-3-million-barrels-a-day-gushes-arab-credit.html

For those who want a better understanding of "Bonds" here is a quick educational video:

http://www.investopedia.com/video/play/understanding-bonds/

 

Thanks so much. I have personally never invested in bonds so, I never really understood the actual process of how a gain was made other than you purchase the bond and let it simmer for years and then come back and cash it in lol.

[MrOptimistic]

Emerging economies purchase our US debt (money printed from thin air) so that they can purchase oil on the market because oil is price in petro-dollars. That is what keeps our US inflation in check. So the US and Iraq have a very tight relationship as Iraq is becoming the biggest producer of quality oil and will be passing Saudi Arabia in reserves in the near future. Iraq's current reserve estimates are actually quite old which is probably why CBI and delegates are in China meeting with INTOSAI to audit the CBI and probably determine a new value for the IQD. That is my speculation at least.

[dontlop]

The Dinar is Fiat. The CBI is the authoritative power that determines the value of the Dinar. That is why it doesn't actually move up or down in value. What we are waiting for is the CBI to allow a commodity to back the dinar (ie:Oil). This will allow the market to determine the exchange rate of the Dinar. Look at oil prices for the last 60 years. There is a lot of demand currently for oil to keep it highly valued for years to come and Iraq has the largest quantity of cheap extractable oil that will soon be all over the market. Once the Dinar moves from fiat to commodity backed we will see the true value of the Dinar. If you were the CBI and you looked at this chart. Would you back your dinar by oil?

I agree

I'm hoping they do back the dinar with oil

People argue saying Iraqis not going to do that because if price of oil drops

Oil was $1.45 a barrel in 1940 . 70 Years ago

The average life span of a human being

They argue commodity backed currency is not the way to go

They prefer the gold backed dollar

Lol

Gold is a commodity

They think gold is money

The only reason they use gold to make money a thousand years ago was because it was soft and easy to work with and it was shiny good looking

We have machines now we don't need soft metal any more

We use plated copper tin Nickel zinc and printed. Notes

That's modern money

But I'm with ya on oil backed dinars are the wave of the future

It's what Iraq is

An oil country

I read only 20 percent of Iraq was explored for oil and their proven reserves are over 155 billion barrels

They think it could be over 300 billion barrels

Edited October 26, 2013 by dontlop