April 17, 2016 / 3:17 PM / 4 years ago

Algeria launches local bond issue to offset energy earnings drop

ALGIERS (Reuters) - Algeria’s first local bond issue in years was opened on Sunday with the government hoping to secure new financing sources after a sharp drop in world oil prices has cut energy earnings that make up 60 percent of its budget.

Algeria’s government has already started to cut back some state-subsidised energy services, reduced its 2015 and 2016 public spending and frozen some infrastructure projects.

The bond issue, with a maturity of 3 to 5 years, will carry an interest rate of 5.0 to 5.75 percent, but no limit has yet been set on the size of the issue.

“We think the interest rate is attractive. A nationwide campaign will be launched to encourage businessmen and ordinary people to participate,” a finance ministry official said on Sunday.

Interested individuals and firms have six months to register at post offices, bank agencies and central bank branches.

“We are waiting. It’s too early to say whether this will be a successful operation,” said one banker at a state bank agency in central Algiers.

Finance Minister Abderrahmane Benkhalfa last week, announcing the bond issue, sought to reassure interested investors that the registration for bonds would be profitable.

“It’s intended for large economic investment in all sectors,” he said.

Members of Algeria’s main business association, known as Forum des Chefs d’entreprises, have already expressed readiness to participate.

But some analysts say there will be still hurdles preventing participation, including an archaic banking system and a lack of details on what the funds from the sale would finance.

Algeria’s economy is emerging from decades of state-centralized control after the 1962 independence from France, but the oil price drop has revived debate over how far the government will go to open up the economy further.

Lower oil prices have also worsened conditions for foreign oil investors, who were already skittish because of Algeria’s tough contract terms, state bureaucracy and delays and security concerns in the North African state.

Editing by Patrick Markey; Editing by Elaine Hardcastle

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