On Monday, the European Bank for Reconstruction and Development launched a 34 billion tenge Eurobond, the first to be linked to the 3-month Consumer Price Index (CPI) calculated by the Agency of the Republic of Kazakhstan on Statistics.
The Bank’s 34 billion tenge eurobond, issued this Monday, has a five-year maturity and pays a spread of 10 basis points per annum over the 3-month CPI rate. The issue will settle on 21 November 2016, and is lead managed by Citi Global Markets Limited. The bonds will be cleared through Euroclear and Clearstream in tenge and listed in London. The EBRD will also apply to the Kazakhstan Stock Exchange (KASE) to seek a domestic listing for the Notes, and subsequently will request the National Bank of Kazakhstan (NBK) accept them for their repurchase operations (REPO) with domestic banks, thereby increasing their liquidity.
Philip Brown, Managing Director & Head of SSA DCM at Citi said: “Citi was delighted to work with the EBRD on this ground-breaking transaction, it’s interesting to see demand for inflation protection from the increasingly sophisticated investor base in Kazakhstan. This trade highlights the useful rolem the EBRD can play in helping local investors meet their needs and in doing so, develop new markets.”
With the introduction of an inflation targeting regime in August 2015, the NBK is creating the conditions for sustainable economic growth in an environment of low interest rates - a policy very much supported by the EBRD. The NBK’s visible efforts to improve the monetary transmission mechanism, including through better inflation forecasting and efficiency in communicating its monetary policy, have encouraged the Bank to link both its tenge assets and liabilities to CPI.
Isabelle Laurent, Deputy Treasurer and Head of Funding at the EBRD said: "With our inaugural CPI-linked issue, Kazakh nstitutional investors, and pension funds in particular, will be better able to match their liability profile, while the EBRD’s Kazakh clients should benefit from long-term funding for their projects linked to a transparent and credible index".
Given the importance of a credible instruments for capital market development, the EBRD, has for many years been actively promoting and participating in the creation of a competitive and transparent interest rate-setting mechanism in countries where it operates.
The EBRD is both a significant tenge lender and borrower and has taken an active part in developing local capital markets. It issued its first tenge-denominated bond in February 2009.
The EBRD’s triple-A rating has been confirmed by all three leading international rating agencies with stable outlook.