ISLAMABAD - Pakistan on Wednesday made a historic return to the international bond market by successfully raising two billion dollars from the global capital market through five- and ten-year Eurobonds issued after a period of seven years.
The money will help boost dwindling foreign exchange reserves and shore up the rupee.
The latest dollar-denominated bonds have fetched the highest amount that Pakistan ever raised in a single attempt from international investors. The government would raise one billion dollars each in five and 10 years, respectively. “The transaction represents the largest-ever international bond offering by Pakistan,” said Rana Asad Amin, advisor and Spokesperson of the Finance Ministry.
Talking to The Nation, he said: “The development showed international investors’ confidence in the economic policies of the government.” He said the government was initially expecting to generate $500 million. However, the target was subsequently raised to two billion dollars as investors’ response was overwhelmingly strong.
Rana Amin said the country’s foreign exchange reserves would go up after the receipt of two billion dollars, likely to be added in State Bank of Pakistan (SBP)’s account by April 15. Pakistan had last accessed the bond market in 2007.
According to media reports, the government has raised $1 billion through five-year bonds at a fixed rate of 7.25 percent, which is as many as 558 basis points above the benchmark five-year US Treasury rate. The rest of the one billion dollars were generated through 10-year bonds at a fixed rate of 8.25 percent, which is 556 basis points above the corresponding 10-year US Treasury benchmark rate. The higher-than-benchmark rate is attributed to the ‘premium’ that Pakistan must pay on its sovereign bonds in order to generate investors’ interest, given that investment in Pakistani bonds is riskier than that in the US Treasury instruments.
Meanwhile, Finance Ministry released detailed statement on Eurobonds. According to the statement, the five-year bonds were distributed across all major geographic regions: 59 percent in the US, 19 percent in the UK, 10 percent in Europe, 10 percent in Asia and two percent others. Fund managers took 84 percent of the five-year issue, banks eight percent, hedge funds seven percent, insurance company/pension funds one percent.
The ten-year bonds were distributed 61 percent in the US, 21 percent in the UK, 12 percent in Europe, five percent in Asia and Middle East and one percent others. Fund managers took 86 percent of the ten-year issue, hedge funds nine percent, banks four percent, insurance company/pension funds one percent.
The Government of Pakistan conducted extensive global road-shows with two teams covering key financial centres. A team headed by the finance minister visited Dubai, London and New York and another team headed by the finance secretary visited Singapore, Hong Kong, Los Angeles, San Francisco and Boston. The Pakistan government delegations, during their four-day road-shows, met directly with a cross-section of several institutional fixed income investors. The teams updated the investors on the recent trends in the Pakistani economy, the government’s reform agenda and key priorities.
The success of the transaction after a 7-year absence from the global capital markets highlights investors’ confidence in the recent changes in country’s leading economic indicators, external finances and structural reforms undertaken by the 10-month-old PML-N government.
Regaining access to the international capital markets will be an important factor in supporting the multilateral flows. The spokesman said that demonstrating the ability to raise financing from a diverse pool of investors is a positive sign for all stakeholders. Furthermore, he said, setting a benchmark allows foreign direct investors to correctly assess the investment climate in Pakistan.
Agencies add: Pakistan raised $750 million and $500 million in its last bond issues in 2007, which were offered with a 7.75 percent mark-up and a 10-year term.
An “overwhelmingly strong” response from investors with over 400 orders resulted in the transaction surpassing initial expectations of raising $500 million, a ministry spokesman added.
Mohammad Sohail, a financial analyst at Topline Securities, said “Testament of investor confidence can be seen from the bidding size.”
The stock market rallied after the bond sale, strengthening the rupee currency. The sale will also boost reserves and help
Cash-strapped Pakistan, plagued by a bloody homegrown Taliban insurgency, is battling to get its shaky economy back on track and solve a chronic energy crisis that cripples its industry.
Last month the International Monetary Fund (IMF) said it saw signs of an improvement in the country’s economic situation, expecting Pakistan’s growth to accelerate to around 3.7 percent for the 2014-15 fiscal year.
An IMF report said the growth was boosted by a stronger manufacturing industry thanks to an easing of Pakistan’s chronic electricity shortages, despite weaknesses in agriculture.
But the report cautioned that Pakistan still had tight foreign reserves and security challenges, including Taliban violence.
Last September, the IMF saved Pakistan from possible default by agreeing to lend it $6.7 billion over three years.
The IMF gives each subsequent disbursement after confirming a country is on track with the conditions of the bailout. Pakistan must crack down on rampant tax evasion and broaden the tax base by eliminating tax exemptions and loopholes.
Pakistan has received three tranches that total about $1.6 billion from the lender. It has already had to get several waivers for failing to meet the conditions of the loan.
According to APP, Prime Minister Nawaz Sharif has expressed appreciation at the return of Pakistan to the international bond market with a US dollar denominated dual tranche offering of US $2.0 billion.
The Prime Minister has congratulated the minister for finance and his economic team for attaining another milestone, said a press release issued here.
The Prime Minister said that re-emergence of Pakistan in the international market shows that the prudent and focused economic policies of the government are now proving successful. He said that this success also reflects the confidence of the international economic forces and institutions in the economic stability and strength of Pakistan. It also proves that the economic wisdom and acumen of the government has finally won the confidence of international investors, he added.
The Prime Minister said that achieving economic independence and progression was his government’s top priority and with current successes, the way ahead is clear which will lead to prosperity and development of the country.