Iraq's public debt a popular investment

Iraq's public debt restructured in 2004 under the Paris Club agreement, is now being traded by hedge fund managers and wealth fund managers, Exotic said yesterday.
Iraq's economic outlook and political landscape is improving.
Iraq's economic outlook and political landscape is improving.

Iraq's public debt loans are becoming increasingly popular among hedge fund managers and wealth fund managers as the country's economic outlook and political landscape improves, Exotix said yesterday.

The Paris Club agreement was set up in 2004 to restructure Iraq's pre-Saddam era public debt of US$37 billion, of which creditors agreed to cancel 80 per cent, while the remaining $7.4 bn was rescheduled into a series of loans denominated in several currencies.

"Some of the loans which were held by governments around the world have been sold at their market price to secondary markets," said Gabriel Stern, a senior economist at Exotix, the investment bank based in London. "The investors are ones who can afford to be in an illiquid instrument, which trade every couple of weeks," he said. Mr Stern has a "buy" rating on the loans.

Meanwhile Iraq's commercial eurobonds, which provide a lower yield, are a bigger and more liquid issue and listed on JPMorgan's EMBIG Index, which fixed-income managers use as a benchmark.

Oil, debt and politics are the key valuation metrics, Mr Stern said.

After the recent spate of agreements with oil companies, the country's oil sector could be on the verge of a boom.

"Iraq is quite simple," he said. "The economics looks very positive because of the oil money. They recently passed the budget to increase spending as oil traded above $100 a barrel … shows they don't have a problem with economics and finances."

Both public and external debt are about to be on a firmly sustainable footing, as six years of debt restructuring are nearing completion. Before the 2004 Paris Club agreement, Iraq's external debt was 552 per cent of GDP. By 2009 the ratio was 142 per cent and by the end of this year it is likely to be under 40 per cent, Mr Stern said.

The only risk is the politics, he said.

"The more likely outcome we think is that oil prices and production recover well, Iraq continues along its bumpy progress path and investors are repaid in full."

Published: August 4, 2011 04:00 AM


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