AMMAN - 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.
Analysts sceptical
Some experts warned, however, that the government's choice of Eurobonds may prove more expensive than it looks.
Economist Zayyan Zawaneh said these bonds would incur higher interest rates than the 2010 issuance as international credit agencies Standard and Poor's and Moody's lowered the Kingdom's foreign currency government bond rating twice in 2011.
Describing the government's plan as a step towards a crisis, Zawaneh, a former adviser at the International Monetary Fund (IMF) and the CBJ, said issuing the dollar-denominated Eurobonds and targeting offshore investors would be risky for several reasons.
The risk of further widening public debt, which reached JD15.016 billion by the end of the first half of this year, to "dangerous" levels, should have prevented policy makers from considering this move, he explained, saying that Jordan's internal and external debts have exceeded their legal limits of no more than 65 per cent of gross domestic product.
He elaborated that going to long-term bond markets with a low credit rating would push investors to impose high interest rates, adding that exposure to international debt markets would jeopardise Jordan's financial reputation.
Stressing that a comprehensive programme to remedy the Kingdom's financial and economic woes should be officials' top priority, Zawaneh challenged Hafez's statement that the government is seeking international bond markets to secure cheaper loans.
"The government is seeking to issue bonds because it has exhausted its limits of borrowing from local banks," he said.
"Officials have been talking about financial problems for over three years. They are not making enough efforts to find a long-lasting solution to the credit crunch but instead are just buying time."
Economist Yusuf Mansur said that by seeking to raise money through Eurobonds to finance current spending, the government is just delaying its fiscal reckoning, which he said will result in higher taxes in the coming years.
Agreeing with Zawaneh's prediction that the interest rates on these bonds will be high, Mansur said that the government should have asked for loans from friendly countries or waited for financial aid from donor countries.
Authorities should have discussed this move with experts and should have made the bonds dominated in euros, he said, as the euro's exchange rate is set to drop.
Seeking a euro-dominated bond issuance could allow the country to obtain cheaper loans in the near future in light of economic indicators about the eurozone, he added.
Meanwhile, head of the public debt department at the finance ministry, Jalal Dibei, told The Jordan Times over the phone that the plan to go to international markets is aimed at reducing pressure on domestic liquidity.
Asked if the bonds were meant to be an alternative to the $2 billion loan the IMF recently approved for Jordan, the official said the Kingdom is still in need of funds on top of the IMF loan.
© Jordan Times 2012
