The Republic of Uzbekistan for the first time has placed “green” sovereign Eurobonds worth 4.25 trillion soums and Eurobonds worth 660 million US dollars on the London Stock Exchange.

For information: On October 2-4 of this year, the delegation of the Republic of Uzbekistan, consisting of representatives of the Ministry of Economy and Finance and the Central Bank, held meetings with more than 50 investors in New York, Boston and London.

During the meetings, reforms implemented under the leadership of the President of the Republic of Uzbekistan were discussed, including the transition to a green economy, liberalization of the price market for natural gas and electricity, privatization of state-owned enterprises, and the policy of trade liberalization. The issues of membership in the International Trade Organization were discussed, as well as the goals and measures defined in the “Uzbekistan-2030” Strategy, which were highly appreciated by investors.

It should be noted that sovereign Eurobonds issued in soums are the first “green” sovereign bonds among the CIS countries.

For reference: green bond funds are used to finance such green projects as the introduction of water-saving technologies, the development of railway transport and the metro, the organization of sanitation and cleanliness in populated areas, the creation of surrounding forest plantations against wind erosion and the flooding of water management structures with sand.

The United Nations Development Program (UNDP) participated in the project selection process. Sustainalytics has received a positive third-party report on the green bond program.

Considering the high demand for “green” bonds of the Republic of Uzbekistan in national currency, it was possible to reduce interest rates (coupon payments) on 3-year soums Eurobonds from the expected 18% to 16.25%. With this transaction, international bonds that were due on November 23 this year, amounting to 1.9 trillion soums, were repaid ahead of schedule.

For reference: at the last auction held on the domestic financial market (September 26), interest rates on two-year government securities amounted to 17.57 percent.

Based on secondary market quotes and investor proposals, the initial interest rate on five-year sovereign international bonds of the Republic of Uzbekistan in US dollars was announced in the range of 8.50 – 8.625 percent.

On the secondary market, the interest rate on international bonds of the Republic of Uzbekistan maturing in 2029 reached 8.1 percent. In particular, over the past week, interest rates increased by 0.43 percent (September 27 – 7.67 percent).

When the order book reached US$1.7 billion, interest rates were reduced to 8.25-8.375%.

With the final requirement reaching US$2 billion, US$660 million in dollar bonds were issued at a rate of 8.125% and a coupon of 7.85%. This coupon rate, recommended by financial advisers, means that the international bonds will be sold to investors at a price of 98.888% (that is, US$652.6 million will be received from this transaction).

Today, global financial markets are experiencing rising interest rates. In particular, interest rates on 5-year US Treasuries have risen almost 4% since July 2021 (the period of the last sovereign bond issuance) from 0.8% in July 2021 to 4.7%.

An increase in interest rates on world financial markets, accordingly, causes a sharp increase in preferential interest rates of international financial institutions.

The SOFR (formerly LIBOR) rate used in international credit markets has risen from 0.17 percent to nearly 5.3 percent since July 2021 to 5.5 percent today.

Thus, interest rates on preferential loans attracted by international financial institutions have increased over two years from 1-2 percent to 6.3-7.0 percent.

Due to current market conditions, other countries are also increasing government debt at higher interest rates than before.

For example,

In January this year, Turkey issued US$2.75 billion of 10-year sovereign international bonds at 9.75 percent;

In January this year, Hungary issued US$1.25 billion in 30-year bonds at 7.1 percent;

Romania issued US$1.25 billion of 30-year bonds in January this year at 7.67 percent;

In January this year, Mongolia issued US$445 million in 5-year international bonds at 8.65 percent;

In February this year, Egypt issued US$1.5 billion in three-year sovereign international bonds at 11 percent;

In April this year, Bahrain issued US$1 billion worth of 12-year bonds at 7.75 percent.

The placement of green bonds will be prepared and published in accordance with international standards.

Source: EconomyMoliyaPress