Central Asia’s Most Populous Country Plans First Eurobond Sale

(Bloomberg) -- Uzbekistan is planning to sell up to $300 million of Eurobonds this year, putting a new issuer on the map for investors as the once-reclusive former Soviet nation makes a bid to open up to foreign investment.

Central Asia’s most populous country signed a memorandum with Citigroup Inc. during recent meetings in New York to develop a road map for obtaining a sovereign credit rating, Finance Minister Djamshid Kuchkarov said in an interview in the Uzbek capital, Tashkent. There is a “high chance” of a bond sale in either dollars or euros this year, he said.

After more than two decades of isolation, Uzbek President Shavkat Mirziyoev has been taking steps to steer the country of over 30 million people down a more market-friendly route since his election in late 2016, following the death of long-time ruler Islam Karimov. Since then, reforms have included lifting currency controls, easing some travel restrictions and taking tentative steps to improve the country’s poor human rights record.

The government will choose two among the three major credit assessors and plans to publish its sovereign rating if it gets a “good” review, according to Kuchkarov. The sale of between $200 million and $300 million would be aimed at creating a benchmark for Uzbek corporate borrowers, he said.

The amount is still under discussion and the president will have the final say, the finance minister said.

‘Modern Corporations’

“We want Uzbek companies to also be in the international financial market,” Kuchkarov said. “Our aim is to turn Uzbek companies into modern corporations.”

If the debt offering goes ahead, Uzbekistan will be the second debut issuer in two years to come from a region wedged between Russia and Afghanistan, which has previously been off-radar to most international investors. Neighboring Tajikistan raised $500 million in an oversubscribed Eurobond sale last year.

A global market rout has meant that investors who bought Tajik bonds when they were issued have lost about 2.8 percent, according to data compiled by Bloomberg. S&P Global Ratings ranks the debt six levels below investment grade.

It’s possible that some buyers of Tajik Eurobonds may reallocate into Uzbek securities, according to Oleg Kouzmin, an economist at Renaissance Capital in Moscow.

‘Much Stronger’

“Uzbekistan has a much stronger economy and institutions,” he said. “It could even be easier if the issuance was bigger in size, because that would draw the attention of a broader group of investors.”

An exporter of gas, gold and cotton, Uzbekistan’s economy expanded 5.5 percent last year after growing 7.8 percent in 2016. As part of an overhaul started by the authorities, Uzbekistan has moved to free up the exchange rate and allowed its currency to devalue, with the soum losing over 60 percent last year against the dollar, the worst performance globally.

“The most important thing in this situation is not to lose the reformist resolve and eagerness to implement drastic changes,” said Petr Grishin, an economist at VTB Capital in Moscow. “Uzbekistan has a large, worthy economy, and it can function on a far more liberal, market-based foundation than now.”

--With assistance from Jake Rudnitsky

To contact the reporters on this story: Evgenia Pismennaya in Moscow at epismennaya@bloomberg.net, Anna Andrianova in Moscow at aandrianova@bloomberg.net, Natasha Doff in Moscow at ndoff@bloomberg.net.

To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Paul Abelsky, Tony Halpin

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