Central Asia: Tajikistan begins road to debut bond

By:
Elliot Wilson
Published on:

Sovereign signs up for credit rating; Multilaterals aim to boost banking sector

Tajikistan has signed up Standard & Poor’s to create the country’s first credit rating – a likely prelude to issuing, in a year or two, its maiden sovereign bond.

The second smallest of the cluster of Central Asian states, squeezed politically and geographically between Russia, China and the West, Tajikistan is poor by any measure. Its economy is worth just shy of $7 billion in 2013, according to data from the World Bank, slightly less than Haiti and Benin.

While investment has started to flood into the rest of the region – notably to resource-rich Kazakhstan, Uzbekistan and Turkmenistan – foreign capital has given Tajikistan a wide berth, concerned by poor energy and transport infrastructure, an uncertain business climate and corruption.

That, the country’s leaders hope, may soon change. CC Yu, country director for Tajikistan at the Asian Development Bank (ADB), says the S&P rating, set to be completed in the first half of 2015, is a "positive development" for the country. The National Bank of Tajikistan has also said that it is in talks with Moody’s Investors Service over the signing of a cooperation agreement.

"The country remains too dependent, in development terms, on multilateral and bilateral donor funds," says the ADB’s Yu. "Having a sovereign bond in place would provide alternative financing. A credit rating is crucial in terms of setting interest rates and would also be a driver for conducting more reforms."

Emomali Rahmon, Tajik President
Tajikistan’s president Emomali Rahmon says private investment capital is a top priority

Some reforms are already being put in place. Tajikistan joined the World Trade Organization in 2014, and slashed the amount of time required to set up a new company. In the final three months of the year, Dushanbe, the capital, hosted a pair of international investment conferences, aimed at drawing in more foreign capital. At one of them, co-organised by German state investment institutions German Development Bank KfW and GIZ, Tajikistan’s strongman president, Emomali Rahmon, told delegates that attracting private investment capital was "one of the country’s top priorities".

So far, it has worked. The French supermarket chain Auchan has since announced plans to open several new stores in the capital, while France’s Total and Beijing-based CNPC are tying up a deal to pipe gas into China. This project would be a "game-changer" for the host nation, says Richard Jones, head of resident office in Tajikistan at the European Bank for Reconstruction and Development (EBRD). Local aluminium firm Talco is pushing to complete a stock listing in the coming years.

Then there is the banking sector. For years, it has been dominated by four large joint-stock lenders, controlling more than three-quarters of industry assets. Agroinvestbank leads the pack in terms of size and reach, with 61 domestic branches, followed by Orionbank, Amonatbank, and Tojiksodirotbank. Yet all four, the ADB noted in a December report, have been "undermined by their targeting of state owned enterprises and implementing government-induced credit programmes, resulting in low asset quality".

Change is in the air, with the industry enjoying a welcome injection of fresh competition. Central bank chairman Abdujabbor Shirinov has pledged to boost the number of foreign lenders operating in the country.

Two microfinance institutions (MFIs), Imon International and Arvand, are also making their presence felt, securing multilateral investment and pushing into new areas including deposit-taking.

Imon, with 83,000 customers served by 127 branches and service outlets, is the bigger of the two, offering loan and deposit products to mid-sized private businesses down to sole traders and farmers. In November 2014, the Dushanbe-based institution secured a $5 million loan from the EBRD with the aim of meeting rising domestic demand for local-currency funding.

"Imon is a real success story," says the EBRD’s Jones. "They started at grass-roots level, boasting a very dynamic management team and filling a gap in the market. They are now moving upscale, making bigger loans in small towns and villages, where most banks would never dream of opening a kiosk or a branch." Insiders say the next step for Imon is to secure a full banking licence, expected in 2015.

Both Imon and Arvand, which has 36 branches and service centres, secured just shy of $1 million in funding from the Asian Development Bank (ADB) in December, part of a $10 million grant provided to the Ministry of Finance by the Manila-based multilateral.

The ADB also in December approved its first private investment package in the country, injecting $11 million worth of capital, including equity investment and loans, into AccessBank, a small Tajik lender whose shareholders include KfW, UK development institution CDC Group, and the European Investment Bank. The ADB’s Yu described the MFIs as "one of the brightest spots in the financial services industry".

The downsides to investing in Tajikistan remain abundant. Transport and energy infrastructure remain a standout concern for investors, blackouts being both regular and lengthy. Banks are riddled with non-performing loans, while taxation rates and standards can change at a moment’s notice.