Iraqi Kurdistan: Possible Bond Sale Underscores Move by KRG to Achieve Greater Independence from Bagdad
Following a decision by the Kurdish Regional Government (KRG) to raise revenues through lending, the KRG entered into talks with Goldman Sachs International and Deutsche Bank AG for a possible bond sale. The move would afford access to capital markets and secure revenues required to meet an influx of refugees and balance their budget. The deal is seen as a larger move to further diversify the region’s economy and seek financial independence from Bagdad and Ankara with particular respect to the petroleum sector.
Below is an article published by Bloomberg:
The Kurdistan Regional Government, which oversees the semi-autonomous region of northern Iraq, has picked Goldman Sachs International and Deutsche Bank AG for a potential bond sale as it seeks greater independence from Baghdad.
The two banks will “organize a series of meetings with international fixed-income investors in London, with a view to a potential transaction in the near future,” the KRG said on its website on Monday. The meetings will run Tuesday through Friday, a person familiar with the plan said, asking not to be identified as the details are private.
The bond plan underscores the deepening tension between the semi-autonomous region and the central government of Baghdad over Kurdistan’s share of the national budget and its control of oil sales. Fighting with Islamic State militants on the Iraqi-Kurdistan border has spurred an influx of refugees into the region, weighing on its economy. Earlier this year, the KRG passed a law that would allow Kurdistan to bring in more money through lending.
The plan to tap capital markets “will be seen as a reinforcement statement to the desire of independence,” Hakim Azaiez, head of investment at GCA Asset Management in London, said by e-mail. “I do not believe that KRG issuing debt will be well-received by the market, especially in the Middle East and North Africa region. KRG is in the middle of regional political crisis and the timing will prove very difficult to start this process.”
The KRG in 2014 started crude exports by pipeline through Turkey as it sought to boost its financial independence from Baghdad. The Iraqi government opposes secession, along with Turkey and Iran.
The Kurdistan administration will need at least $1.4 billion in assistance to stabilize the economy after growth slowed from 8 percent in 2013 to 3 percent last year, and poverty doubled, the World Bank said in a report in February.
“The KRG faces the same challenge as Baghdad to diversify its economy,” Robert Tollast, a political risk analyst who focuses on Iraq, said by e-mail. “The Kurds are still well short of the $700 million they need to balance their budget.”
The Kurdish region holds 45 billion barrels of oil reserves, while the rest of Iraq has 150 billion barrels, the world’s fifth-largest known deposits. The efforts to sell crude separately from the central government has provoked legal action by authorities in Baghdad.