Investment Roadshow: 'Fight ISIS, Buy Kurdistan Bonds'

Invest in the peshmerga, the brave fighters of ISIS--buy Kurdistan bonds.

Among more adventurous "investments" I've covered in the recent past, Ukraine bonds are among the choice picks insofar as literally fighting anti-Western forces are concerned. With yields north of, oh, 50%, they are factoring in a substantial reduction in the value of these bonds as Ukraine's "government" is literally fighting for its life. But, here's some good news if you're having doubts about investing in Ukraine: Try some Kurdistan bonds. 

I have portrayed the Kurds as the only real good guys in Iraq as they fend off ISIS, a rapacious central government in Baghdad, Saddam's Baathist loyalists, and a Turkey fearful of a nation of Kurdistan at the same time. Instead of investing in those opposing a new Russian Empire or a reborn Soviet Union, you can put your money to work funding those at the frontlines of a war against a hyper-retrograde "caliphate." Last week, the Kurds were in London flogging Kurdistan bonds. In a world of low interest rates, some of these fringe issues are becoming increasingly attractive:

As the fight against Islamic State rages in Iraq, the semiautonomous Kurdistan region is wading into a battle of different sorts. Its government is in London to woo international investors for a new bond issue, the latest among fringe emerging markets. The Kurdistan Regional Government [KRG] is planning to raise cash through a bond sale, its first ever, as it seeks to plug a gaping hole in its finances thanks to weaker oil-sale revenues amid an increasingly costly battle with the radical militants.

The KRG is holding fixed-income investor meetings this week through Friday in London, organized by Deutsche Bank and Goldman Sachs International, to gauge appetite for the energy-rich region’s debt, and may issue a bond after that. They are meeting big institutions and frontier-market investors, and will complete the size of the bond depending on demand.

The bond issue seeks to fulfill the government’s budget deficit, which is expected to reach $5 billion this year for the second year in a row, said Ezat Sabir, head of the investment and economy committee in the KRG’s regional parliament. KRG’s bond plan comes at a time when global investors anticipate a rise in U.S. interest rates, which could trigger a selloff in riskier emerging-market debt. Some of the riskiest sovereigns in the world—such as Armenia, Bulgaria and Ecuador—have sold debt in recent months, finding takers for the high yields they offered amid record low global interest rates.

Actually, Kurdish officials explain, their bonds are not a dubious investment since some of the richest oil reserves in Iraq lie in Kurdistan. In other words, revenue streams should be fairly steady going forward:

The KRG doesn’t have a credit rating, which usually helps investors make a decision, and Kurdish fighters are fighting Islamic State just outside the borders of the Kurdish region. But some bankers and government officials are still optimistic.

They point to the Iraq 2028 bond that trades at around 8%—more favorable than the yields on debt issued by countries such as Venezuela, Greece and Ukraine. And the country’s economy is underpinned by oil. Islamic State, despite its advances, is still far away from the heart of oil production in southern Iraq. The Iraqi central government, meanwhile, is also looking to raise debt through its own bond sale.

“We are optimistic about the future of our future economy because we have huge reserves of gas and oil,” the KRG’s Mr. Sabir said.

Given how menacing ISIS has become, there may be an additional normative component to investing in Kurdistan.