Tashkent, Uzbekistan (UzDaily.com) -- Uzbekistan for the first time placed green sovereign international bonds worth 4.25 trillion soums and international bonds worth US$660 million on the London Stock Exchange.

On 2-4 October, the delegation of the Republic of Uzbekistan, consisting of representatives of the Ministry of Economy and Finance and the Central Bank, held meetings with more than 50 investors in New York, Boston and London.

At the meetings, investors highly appreciated the reforms carried out under the leadership of the President of the Republic of Uzbekistan, including the transition to a green economy, liberalization of the natural gas and electricity price market, privatization of state-owned enterprises and the policy of trade liberalization through membership in the World Trade Organization, as well as goals and measures, outlined in the “Uzbekistan-2030” strategy.

It is worth noting that international sovereign bonds issued in soums are the first “green” sovereign bonds among the CIS countries.

Proceeds from green bonds will be used to finance green projects, such as the introduction of water-saving technologies, the development of railway transport and metro, the organization of sanitary cleaning and maintaining cleanliness in populated areas, as well as the creation of protective forests against wind erosion and siltation of water bodies.

The United Nations Development Program was involved in the project selection process. The second third-party positive opinion on the green bond program came from Sustainalytics.

Considering the high demand for “green” bonds of the Republic of Uzbekistan in national currency, it was possible to reduce interest rates (coupon payment) on 3-year soum international bonds from the expected 18% to 16.25%. This transaction was the early repayment of international bonds in the amount of 1.9 trillion soums with a maturity date of 23 v.

At the last auction on domestic financial markets (on 26 September), interest rates on 2-year government securities amounted to 17.57%.

Based on secondary market quotes, as well as investor proposals, the initial interest rate on 5-year sovereign international bonds of the Republic of Uzbekistan in US dollars was announced in the range of 8.50-8.625 percent.

The interest rate on international bonds of the Republic of Uzbekistan due in 2029 on the secondary market reached 8.1 percent. In particular, over the last week (September 27 – 7.67 percent) interest rates increased by 0.43 percent.

When the order book reached US$1.7 billion, a reduction in interest rates to 8.25-8.375 percent was achieved.

When final demand reached US$2 billion, US$660 million in bonds were issued at a rate of 8.125% and a coupon of 7.85%. This coupon rate, recommended by financial advisors, means that the international bonds are being sold to investors at a price of 98.888% (meaning US$652.6 million will be received from this transaction).

Today, global financial markets are experiencing rising interest rates. In particular, interest rates on 5-year US Treasuries rose nearly 4% per month in July 2021 (the latest sovereign bond issuance period), reaching 4.7%, up from 0.8% in July 2021.

The increase in interest rates from global financial markets, accordingly, also causes a sharp increase in the preferred interest rates of international financial institutions.

The SOFR (formerly LIBOR) rate used in international credit markets has risen from 0.17% to almost 5.3% since July 2021, reaching 5.5% today.

Therefore, interest rates on preferential loans attracted by international financial institutions also increased from 1-2% in two years to 6.3-7.0% today.

Due to current market conditions, other countries are also raising government debt at higher interest rates than before. For example:

Turkey issued US$2.75 billion in January this year in 10-year sovereign international bonds at 9.75%;

Hungary issued US$1.25 billion in 30-year bonds in January this year at 7.1% interest;

Romania issued US$1.25 billion in 30-year bonds in January this year at 7.67% interest;

Mongolia issued US$445 million in 5-year international bonds in January this year at 8.65%;

Egypt issued US$1.5 billion in 3-year sovereign international bonds in February this year at 11% interest;

Bahrain issued a 12-year interest rate of US$7.75 billion in April this year.

A report on the expenditure of funds received from the placement of green bonds will be generated and published in accordance with international standards.