Iraq plans to sell $2 billion in bonds

Updated 19 April 2016

Iraq plans to sell $2 billion in bonds

BAGHDAD: Iraq may go ahead with plans to sell $2 billion in bonds in the next three months, hoping that international aid will lower the cost of borrowing that derailed earlier plans to issue the debt, the governor of the Iraqi central bank said in a interview Tuesday in Baghdad.
Iraq would like to see the yield drop to 5 percent from the 11 percent investors originally demanded, Gov. Ali Al-Alak said. The sale could be managed by banks including Standard Chartered, Deutsche Bank and Citi, he said.
Iraq had called off a sale of US dollar-denominated bonds in October 2015 rather than pay the 11 percent yield. It revived those plans in December 2015.
Iraq last sold debt internationally in 2006, when it issued about $2.7 billion of bonds due in 2028 with a coupon of 5.8 percent. Those bonds now trade around 70 cents on the dollar, for a yield of 11.66 percent. Standard & Poor's rates Iraq's long-term credit at B-, six notches below investment-grade. But Iraq hopes to get $15 billion to $16 billion in loans over the next two years from the International Monetary Fund, the World Bank and members of the Group of Seven leading industrialized nations, Al-Alak said.
About $7 billion should come in between June and December, and Iraq may also get US and World Bank borrowing guarantees to cover the planned bond sales, he said.
The IMF said at the end of March said it might approve as early as June a standby arrangement unlocking $15 billion in international assistance over the next three years.
"Any progress" with the IMF "will give positive marks for the market that will help to deal with the bonds' issue," Al-Alak said.
"Besides, several guarantees from the US or the World Bank will help to reduce the interest rate," he said. "Five percent to 6 percent will be reasonable. If we can get this kind of guarantee, we might even get less than that."
Iraq is seeking international support after a collapse in oil prices two years ago caused its revenue to drop — the government relies on oil for 95 percent of its income.
With oil prices falling and the war intensifying, Iraq's economy shrank by 2.1 percent last year, the IMF said. Debt is expected to reach 77 percent of gross domestic product this year.
Iraq plans to implement measures to reduce spending and increase revenue by raising electricity prices and income taxes to facilitate an IMF loan of $6 billion by next June, the central bank governor said.
"There are a few items we have to work on right away," he said. "We have to get an approval from the council of the ministers as soon as possible, before June at least."
The country also hopes to get $4 billion from the World Bank and $3 billion to $5 billion at meeting of the G-7 due next month in Japan, he said. "There is good hope that we will get some support from that meeting — it is on their agenda," he said.

Merkel seeks united front with China amid Trump trade fears

Updated 22 May 2018

Merkel seeks united front with China amid Trump trade fears

  • Merkel seeks common ground to ward off trade war
  • Plans complicated by US policy moves

Chancellor Angela Merkel visits China on Thursday, seeking to close ranks with the world’s biggest exporting nation as US President Donald Trump shakes up explosive issues from trade to Iran’s nuclear deal.

Finding a common strategy to ward off a trade war and keep markets open will be Merkel’s priority when she meets with President Xi Jinping, as Washington brandishes the threat of imposing punitive tariffs on aluminum and steel imports.

“Both countries are in agreement that open markets and rules-based world trade are necessary. That’s the main focus of this trip,” Merkel’s spokeswoman Martina Fietz said in Berlin on Friday.

But closing ranks with Beijing against Washington risks being complicated by Saturday’s deal between China and the US to hold off tit-for-tat trade measures.

China’s economic health can only benefit Germany as the Asian giant is a big buyer of Made in Germany. But a deal between the US and China effectively leaves Berlin as the main target of Trump’s campaign against foreign imports that he claims harm US national security.

The US leader had already singled Germany out for criticism, saying it had “taken advantage” of the US by spending less than Washington on NATO.

Underlining what is at stake, French Economy Minister Bruno Le Maire warned the US-China deal may come “at the expense of Europe if Europe is not capable of showing a firm hand.”

Nevertheless, Merkel can look to her carefully nurtured relationship with China over her 12 years as chancellor.

No Western leader has visited Beijing as often as Merkel, who will be undertaking her eleventh trip to the country.

In China, she is viewed not only as the main point of contact for Europe, but, crucially, also as a reliable interlocutor — an antithesis of the mercurial Trump.

Devoting her weekly podcast to her visit, Merkel stressed that Beijing and Berlin “are both committed to the rules of the WTO” (World Trade Organization) and want to “strengthen multilateralism.”

But she also underlined that she will press home Germany’s longstanding quest for reciprocity in market access as well as the respect of intellectual property.

Ahead of her visit, Beijing fired off a rare salvo of criticism.

China’s envoy to Germany, Shi Mingde, pointed to a “protectionist trend in Germany,” as he complained about toughened rules protecting German companies from foreign takeovers.

Only 0.3 percent of foreign investors in Germany stem from China while German firms have put in €80 billion in the Asian giant over the last three decades, he told Stuttgarter Nachrichten.

“Economic exchange cannot work as a one-way street,” he warned.

Meanwhile, looming over the battle on the trade front is another equally thorny issue — the historic Iran nuclear deal, which risks falling apart after Trump pulled the US out.

Tehran has demanded that Europe keeps the deal going by continuing economic cooperation, but the US has warned European firms of sanctions if they fail to pull out of Iran.

Merkel “hopes that China can help save the atomic deal that the US has unilaterally ditched,” said Die Welt daily.

“Because only the giant emerging economy can buy enough raw materials from Iran to give the Mullah regime an incentive to at least officially continue to not build a nuclear weapon.”