Nearly $3 billion worth of bonds bearing the name of the Republic of Iraq are scheduled to begin trading in London on January 19, in a private placement that will mark the troubled country's first appearance in the international debt markets.
Iraq plans to issue the bonds, worth about $2.8 billion, as part of a complex debt restructuring aimed at settling claims with some of the country's largest commercial creditors, reports The Times newspaper. Under the terms of a deal struck in Singapore last month, banks, construction companies and industrial suppliers will receive bonds with a face value of $200 for every $1,000 that they are owed.
The debts date back to the early 1980s, before the international community imposed trade sanctions on the country's former ruler, Saddam Hussein. The bonds will pay an annual coupon of 5.8 percent and are due to mature in 2028. The debt will be guaranteed by the Iraq Government.
Creditors speaking for around $14 billion of claims have agreed to the debt swap and will receive the bonds in specially designated accounts at EuroClear, the settlement and clearing operation, on January 19. There will be no material restrictions barring bondholders from selling their entitlements for cash and the bonds will be free to trade on the open market in much the same way as the debt of other emerging economies.
Because the bonds will be placed with creditors rather than sold to investors, there will be no underlying issue price against which their value may be measured: holders will have to wait until the debt finds its level on the market when trading begins.
Finance Minister Ali Allawi told Reuters that "The bond will extinguish the claims of most large private sector creditors on Iraq. It will fulfill a major goal of the interim government." Around 80 percent of creditors with smaller claims on Iraq, typically under $35 million, have agreed to take a 12.5 percent cash payment of principal.
Iraq still owes other government-to-government debt, including to Kuwait and Saudi Arabia, as well as the war reparations, of which Iraq already paid $20 billion, mostly in the sanctions era when Iraqi living standards plummeted. "The next government has to work with the security council and the beneficiary countries to solve this issue. We do not deny the validity of the reparations, but the Iraqi people have also suffered enough," Allawi said. He has not put his name forward as a member of the next government to be formed after elections last month.
The widely respected minister urged quick formation of a new cabinet, saying the more than four months it took the government to form in May resulted in low government investment last year and helped push economic growth down to 4-5 percent in 2005. Growth was 50 percent in 2004, when the economy started to recover from the US-led invasion. But high inflation is unlikely to come down soon from 25 percent last year, he said. "We are moving from an economy where prices meant nothing to one where they are starting to reflect cost. So there is bound to be a shift into a new price structure and also a cost-push from a very large expansion of public payroll costs and pensions," Allawi said.
The White House said on Tuesday that other countries should contribute to the rebuilding of Iraq without confirming or denying reports that it has no plans to fund new reconstruction initiatives. White House spokesman Scott McClellan's remarks came after The Washington Post reported on Monday that President George W. Bush's administration had drawn the line on fresh spending for Iraq rebuilding and will make no budget request to lawmakers in Congress for more reconstruction funds. Asked about the report, McClellan said: "The budget process is ongoing at this point."