Pakistan has raised $2.5 billion in three dollar bonds of five, 10 and 30 years from the international capital market, the first such transaction since the government led by Prime Minister Imran Khan came to power in 2018.
The development came a day after Khan dropped Finance Minister Dr Abdul Hafeez Shaikh and appointed Minister for Industries and Production Hammad Azhar in his place.
Dawn newspaper reported on Wednesday that this was the first international capital market transaction since the Pakistan Tehreek-e-Insaf (PTI) party came to power in August 2018.
Last week’s revival of the $6 billion International Monetary Fund (IMF) programme after a year of virtual suspension followed by $1.3 billion commitment from the World Bank have improved investor confidence.
Meanwhile, the State Bank of Pakistan (SBP) on Tuesday received $498.7 million (equivalent to Special Drawing Rights 350) tranche from the IMF.
The government contracted $1 billion 5-year bond at an interest rate of 6 per cent, another $1 billion of 10 years at 7.375 per cent and about $500 million of 30-year bond at cut-off yield of 8.875 per cent, sources in the ministry of finance and debt office told the newspaper.
They said the authorities had initially given to the banking consortium initial price guidance of 6.25 per cent, 7.5 per cent and up to 9 per cent for 5-year, 10-year and 30-year papers respectively and a healthy investor response helped reduce return on bonds.
Pakistan had last raised USD 2.5 billion in international bonds in November 2017. This included a $1 billion 5-year Islamic Sukuk at 5.625 per cent and another $1.5 billion in 10-year Eurobond at 6.875 per cent. As such, all the three bonds of five, 10 and 30 years from the international capital market contracted on Tuesday were relatively expensive when compared to the 2017 papers.
Director General Debt Management Office Abdul Rehman Warraich said the bankers to the transaction had barred the government of Pakistan from commenting on the transaction. Another official said this was because newly-appointed Finance Minister Hammad Azhar wanted to declare victory himself on Wednesday at a live news conference. The authorities have remained tight-lipped on the issue since the banks were hired for the transaction a couple of months ago.
Deutsche Bank, Emirates NBD Capital, JPMorgan, Standard Chartered, Credit Suisse and BOC International were the arranger to the transaction. The authorities had originally targeted up to $2 billion bonds but decided to go for a higher kill in view of encouraging investor turnout and cancellation of up to $1 billion Islamic Sukuk following a controversy over the allocation of F-9 Park in Islamabad as collateral. It was not immediately clear if the government would soon be prepared for the Islamic bond as fresh properties are yet to be evaluated.
One of the reasons behind the encouraging investor response was also stated to be Dr Shaikh’s decision to exempt investors of these bonds from 30 per cent income tax. The federal Cabinet had approved the tax exemption on sovereign bonds.
Earlier in the day, New York-based Fitch Rating – one of the three leading international rating agencies – assigned “B-negative” rating with “Stable Outlook” to Pakistan dollar bonds, according to another report in the Dawn.
Cash-strapped Pakistan's economic woes have further worsened due to the coronavirus pandemic and Khan's government is arranging finances from world bodies, including the International Monetary Fund, to tide over the crisis.