Kuchkarov: Uzbekistan to purchase U.S. Treasuries for FX reserves

Uzbekistan intends to reduce the proportion of gold in its foreign currency reserves and buy U.S. Treasuries instead, Reuters reported citing Finance Minister Jamshid Kuchkarov as saying.

Uzbekistan’s foreign currency reserves stood at $26.4 billion as of December, according to central bank data.

“From the beginning of this year the central bank is going to diversify how it manages its reserves, and they are going to buy some U.S. Treasuries,” Kuchkarov told Reuters during a visit to London.

The Finance Minister had been meeting investors as part of the country’s $1 billion international bond market debut.

“Roughly half of our reserves are gold, because we are gold producers,” deputy central bank governor Temur Ishmetov said. “We are planning gradually to reduce the share of the gold in our reserves and add U.S. Treasuries.”

Uzbekistan on Wednesday sold a $1 billion bond in its first foray into international capital markets.

Investors were keen to snap up the issue, with order books in excess of $3.8 billion. Many said, however, that pricing for the junk-rated bond was very tight, with the 2024 bond yielding just 4.75% and the 2029 tranche 5.375%.

Uzbekistan holds a BB- rating with Fitch and S&P, while Moody’s rates it at B1 - one notch below its peers.

Both bonds fell after starting to trade on Thursday. The 5-year issue was indicated at 99.66 cents in the dollar, while the 10-year stood at 99.7750 cents, according to MarketAxess.

Kuchkarov confirmed the government would tap international debt markets on an annual basis, and that two of the country’s banks were likely to follow suit over the course of 2019.

Possible lenders named in investor meetings were Uzbek Industrial and Construction Bank Joint-Stock Commercial Bank (UPSB), Joint Stock Commercial Bank Asaka, SCM Ipoteka Bank and National Bank of Uzbekistan.

Kuchkarov said the government would push ahead with reform efforts and privatize a number of state-owned enterprises.

On top of the list was state utility Uzbekenergo, which will be split into a power generation and a transmission business in 2019, with parts of it open to private investment through public-private partnership.

State-owned Navoi Mining and Metallurgy Combinat - one of Uzbekistan’s largest mining companies - will be listed in 2023, Kuchkarov added.

He predicted the country’s economy would expand by 5.3% in 2019, accelerating to its potential rate of 7-8% in the years to come.