C&B Notes

Where is Tajikistan?

It’s probably not a good sign when the bond prospectus requires a map to locate the issuing country.  Even then, we were perhaps most struck by the relative value rationale trotted out by some of the bond speculators.  The abiding lesson is that an investor should never be required to swing the bat.

Demand for the $500 million of 10-year amortizing notes of the Central Asian republic of Tajikistan was so high it knocked about 90 basis points off the initial price guidance, allowing the government to sell at a yield of 7.125 percent. The nation’s credit rating is six levels below investment grade at S&P Global Ratings, and for perspective, investors were paying the same rate for U.S. Treasuries 22 years ago…

“I am getting compensated for the risks at these spread levels,” said Claudia Calich, a money manager at M&G Ltd in London who bought the bond. “The market remains receptive for lower-quality credits at the moment.”  Tajikistan got more than $3.1 billion in bids for its $500 million bond, according to a person familiar with the matter, who is not authorized to speak publicly and asked not to be identified.  More than 60 percent of the new bonds went to investors from the U.S. and U.K., with fund managers accounting for 85 percent.

Investors who attended the roadshow for the bond in London last week said they were attracted by the nation’s intention to use the cash to finance a hydro power plant, which will help diversify the economy away from remittances.  The mountainous country has potential to become the eighth-biggest producer of hydro-electric power in the world, according to the bond prospectus.  The document, which begins with a map to help investors locate the country, devotes 10 pages to laying out the risks involved in investing in Tajikistan.  These include lack of democracy and potential for social unrest, a banking crisis and economic reliance on Russia.  It also notes that “one of the highest-volume illegal drug trafficking routes in the world” runs through the country.

h/t Tom Brakke / The Research Puzzler

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