Jordan Seeks Up To $1.5 Billion Through Eurobonds

Jordan plans to raise between $750 million and $1.5 billion by issuing Eurobonds in international markets in order to finance the Kingdom’s spending needs, Finance Minister Suleiman Hafez said Wednesday.

The dollar-dominated bonds will be paid over a period of seven to 10 years, according to the minister, and are intended to open up the domestic financial market for more private sector borrowing.

However, analysts interviewed by The Jordan Times questioned the plan, saying it would carry risks.

In a statement e-mailed to The Jordan Times, Hafez said that the government had invited banks and international financial institutions to manage the bond issuance, adding that the ministry had received several offers and that the consortium of banks would be announced soon.

“A specialised committee from the Ministry of Finance and the Central Bank of Jordan (CBJ) is currently studying the offers to pick the best offer in terms of interest rates and issuance costs,” Hafez said.

A “Eurobond” or “external bond” is a bond denominated in a currency not native to the issuer’s home country or market in which it is issued.

Multinational companies and national governments, including governments of developing countries, use Eurobonds to raise capital in international markets.

The minister explained that the government resorted to this financing tool in order to strike a balance between domestic and external borrowing, adding that borrowing to finance the budget deficit, which is forecast to top JD1.1 billion this year, had reflected negatively on the performance of the private sector.

Government competition with the private sector in obtaining financing from local banks has resulted in higher interest rates in the Jordanian market, he added.

One of the main reasons why authorities chose to issue Eurobonds, Hafez said, is that they will provide the Kingdom with a new financing instrument with a lower interest rate.

With interest rates in international markets at low levels, he said, issuing Eurobonds now would be more beneficial than delaying new borrowing in the coming few years, as Jordan is set to pay off its last bond issue in 2015.

In 2010, Jordan issued $750 million in five-year bonds in international markets that carried a fixed annual interest rate of 3.875 per cent, to be paid in six-month instalments.

It was the first time the Kingdom had issued bonds in international markets.

Jordantimes