Analysis - Purchasers of bonds in Kazakhstan expect yield decrease

/REUTERS, Almaty, Oljas Auezov, September 24, 02/ - Traders suppose that eurobonds of the State development bank of Kazakhstan and the largest private bank Kazkommertsbank, and also three-, four- and five-year domestic bonds of the Ministry of finance will be the main substitution of redeemed eurobonds of Kazakhstan. Traders pessimistically call the forthcoming date of eurobonds redemption - on October 2 - the "Dies Irae", for it is going to significantly decrease profits. According to market participants' forecast yield of all new instruments will be lower than the one, which was at the market till the moment. Volume of the redeemed issue equals to $350m, at this, by the National Bank's estimation, about $210m of them will be given to Kazakhstan investors - pension funds and banks. The Ministry of finance did not inform yet what volume of domestic securities it is going to offer in exchange for redeemed eurobonds. Development bank, Kazkommertsbank and the Ministry of finance have started floatation of their securities at domestic market already. BANKS HAVE COME IN TIME Development bank of Kazakhstan, which started its road-show on September 20, offered domestic and foreign investors five-year eurobonds to the amount of USD100m or euro, having promised to determine currency and fixed coupon rate after collection of applications. Traders believe that the bank can increase issue volume in case of presence of high demand, and they expect bonds yield on the level of 7.0-7.5% APR. They believe that excessive liquidity of domestic pension funds as well as growing interest of foreign investors for Kazakhstan debt will promote it. "Increasing of Kazakhstan rating will also impact (the yield of Development bank eurobonds)", - said a trader of domestic pension assets management company (PAMC) to Reuters. International rating agency Moody's on September 19 increased Kazakhstan rating to investment one "Ваа3" с "Ва2". The other issuer - Kazkommertsbank - offered domestic investors not the new issue but five-year eurobonds in the amount of USD150m, which were floated in Mat of this year in Europe and USA. On Monday the bank's securities were included into "А" listing category of Kazakhstan stock exchange and it gives the right to domestic pension funds and banks to purchase them. Some market participants believe that coming of the bank's eurobonds to domestic market one day before redemption of sovereign eurobonds had been planned in advance. "It is not excepted that there was secret agreement of the Government with Kazkommertsbank", - believes a trader of a domestic PAMC. "(Coming of securities to Kazakhstan market) will allow to enrich western investors due to pension funds", - he added. "The price of Kazkommertsbank's eurobonds (with the face value of $100) during two days (Friday-Monday) increased by $6", - said another trader. An analyst of a western investment company confirmed that "great deals" are conducted in the mentioned securities. INVESTORS SAY GOODBYE TO YIELD The third issuer - Ministry of finance - sharply increased volume of borrowings, having issued on Monday three-year bonds to the amount of KZT3,945.0m (about $25m) with the yield of 8.18% APR, which are to be paid by investors on October 3. On the previous auction the Ministry of finance floated similar securities to the amount of KZT900.0m with the yield of 8.25% APR. The main purchasers of bonds of the Ministry of finance are pension funds - the biggest investors at domestic stock market, - which are obliged to support 35-% share of the state securities in their investment portfolios. Traders believe that next issues will be three-, four- and five-year and do not exclude possibility of the issue of seven- and 10-year securities. They also forecast that yield of state securities will continue to decrease for the Ministry of finance has just unified excessive liquidity, which was existing already. An analyst of a western investment company said Reuters that he expects from Ministry of finance a total volume of domestic bonds issue in the amount of from $50 to $100m. Yield of five-year securities, in his opinion, will not exceed 8.2- 8.3% APR. "The Ministry of finance strives for changing of yield on its securities", - believes a trader of domestic PAMC. "This is continuation of the policy of twisting arms", - says the analyst of a western company to him, meaning obligation of pension funds to keep a definite part of state securities in their portfolios. Many pension funds and banks purchased eurobonds of Kazakhstan of the second issue on the peak of yield, which after Russian financial crisis of 1998 reached 30% APR. LIMITED POSSIBILITIES Investors have other possibilities to substitute eurobonds of Kazakhstan. However they are limited. One way - purchasing of foreign issuers' securities. Pension funds have the right to invest up to 10% of assets into securities of foreign issuers with rating of no lower than "АА", the same amount - with rating of lo lower than "А", and 10% more - into bonds of international financial organizations. According to the words of the Head of the National Bank Grigory Marchenko, volume of foreign investments of pension funds are much lower now. "As a whole in the system 7% (have been invested) into foreign securities", - he said to Reuters in the beginning of September. However growth of such investments is kept by low yield of securities with such the ratings. "They (pension funds) do not like low yield", - believes Marchenko. In order to allow domestic investors to purchase Russian, more profitable, securities, the National Bank has developed the program of Kazakhstan depositary receipts issue. However its sale has not begun yet. Another investment alternative is rather small, but more profitable issues of Kazakhstan issuers, for Kazakhstan mortgage company, which is controlled by the National Bank and which plans to issue three-year mortgage bonds in October. Issue volume - KZT300m (about $2m) that makes it insignificant in the opinion of pension funds. And, at last, for operative regulation of liquidity the National Bank in October will increase volume of issued short-term notes. THERE WILL BE NO KAZAKHSTAN EUROBONDS AS YET The Government did not inform yet about plans of new eurobonds issue, but deputy Minister of economics and budget planning Arman Dunayev, who spoke at presentation of Development bank's eurobonds, did not exclude possibility of refinancing of sovereign eurobonds with maturity date in 2004, volume of which equals to about $300m. Before, in Dunayev's opinion, Kazakhstan will not issue new eurobonds. Eurobonds of Kazakhstan with maturity date in 2007 in the amount of $350m are also traded at the market. The Republic with preferred raw stuff economics has, besides investment rating "Ваа3" from Moody's, rating on the level of "ВВ" friom FItch and S&P. [2002-09-24]