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Jordan picks banks to manage $500 mln Eurobond

Jordan's first $500 mln eurobond to tap lower-cost funding.

August 19, 2010 8:54 by

Jordan will award JP Morgan, HSBC and an Arab Bank/Credit Suisse consortium mandates to arrange a $500 million Eurobond issue, in its first ever move to tap global capital markets, the finance minister said on Wednesday.

The banks were selected from at least a dozen global lenders who had offered to lead-manage the five-year sovereign eurobond issue, which will help Jordan diversify its borrowing sources, establish a benchmark and ease pressure for financing from local banks, Mohammad Abu Hammour told Reuters.

“This is the first step to launch our first sovereign eurobond by the end of September/early October, which we believe will reflect the strong investor confidence in Jordan’s sound macroeconomic fundamentals,” Abu Hammour said.

Formal notification of the award will be made in the next few days, Abu Hammour added.

Jordan last June said it would go to the international markets to capitalise on healthy global demand for sovereign issues from emerging markets.

Banking sources say that among the other banks that had submitted offers were Qatar National Bank, BNP Paribas, Citibank, Credit Suisse, Deutsche Bank, and Standard Chartered.

Abu Hammour said the government aimed to raise money amid signs of a recovery in Jordan’s economy and political support for a tough fiscal consolidation plan.

Jordan was beating fiscal goals after it slashed its budget deficit by 70 percent in the first half of 2010 by undertaking some of its toughest spending cuts in years, Abu Hammour said.

The kingdom was closer to its aim of cutting its deficit by 3 percentage points to 6.3 percent of GDP this year that would help the economy ride out the global downturn, he added.

He said the $500 million issue would be on a fixed rate basis as a hedge against future interest rate fluctuations.

The kingdom had originally sought to issue five-year paper on either a floating basis based on six- or three-month LIBOR or a fixed rate basis leaving the spread and issue price to be proposed by the banks.

“We are confident that pricing will reflect our track record of reforms and political stability,” Abu Hammour added.

Jordan was also banking on “strong demand” for its offering to help fuel a rebound in investments to pre-global economic crisis levels, Abu Hammour.

“We see healthy appetite for Jordanian debt because we don’t have any outstanding paper and want to capitalise on favourable market conditions that tempt international investors who want to diversify their sovereign bond portfolio,” Abu Hammour added.

As Jordan is not a regular issuer, the pricing could also create a sovereign curve and pave the way for a more active secondary market in government debt paper, Abu Hammour said.

By establishing a benchmark, the issue could pave the way for future offerings, Abu Hammour added.

“Creating a benchmark and investment grading will no doubt help raise our investor profile and attract more capital inflows,” he added.

Last year the authorities considered tapping international markets to finance a chronic deficit worsened by the global downturn. But they put the plans on hold as risk-averse local banks awash with liquidity were happy to lend to the government even at low interest rates.

A rise in yields on local borrowing in recent months amid expectations of higher interest rates has encouraged the government to tap lower cost funding from international markets, Abu Hammour said.

With the government no longer competing with the private sector to borrow as heavily from the domestic market, more funds would be available to the private sector to spur investments and growth, he added.

(By Suleiman al-Khalidi, Writing by Suleiman al-Khalidi; Editing by Toby Chopra)

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