The higher-than-benchmark rate is attributed to the ‘premium’ that Pakistan must pay on its sovereign bonds in order to generate investor interest. PHOTO: FILE
KARACHI: Pakistan successfully raised $2 billion from global capital markets through the issue of five- and 10-year Eurobonds on Wednesday, according to a local brokerage house.
The latest dollar-denominated bonds have fetched the highest amount that Pakistan has ever raised in a single attempt from international investors.
According to Topline Securities Research Analyst Zeeshan Afzal, the government has raised $1 billion through five-year bonds at a fixed rate of 7.25%, which is as many as 558 basis points above the benchmark five-year US Treasury rate. The rest of the $1 billion was generated through 10-year bonds at a fixed rate of 8.25%, 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 investor interest, given that investment in Pakistani bonds is riskier than that in the US treasury instruments.
Afzal said the overwhelming bidding size is a testament to the confidence that international investors have in the economy of Pakistan, as the issue was oversubscribed many times against the initial target of $500 million. “Improved investor perception about Pakistan should mainly be attributed to the government’s reform process, IMF programme and improving economic outlook,” he noted.
Most investors were from the United States, as they bought 59% of the five-year bonds and 61% of the 10-year bonds.
Currently, three Eurobonds of Pakistan are outstanding. They include 2016 bond ($500 million) yielding 5.81%, 2017 bond ($750 million) yielding 6.18%, and 2036 bond ($300 million) yielding 9.25%.
“This deal will help Pakistan get better response in the upcoming telecom licence sale and the privatisation deals beside supporting the local currency,” Afzal added.
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COMMENTS (36)
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Actually i want to knew that what is the price of EURO BONDS which has been calculated by the investors. Definitely the interest rate is so high which our Govt has offered to the investors, 7.25% for five years and 8.5% for the period of ten years. Government should clear that point to the peoples that the price of EURO BONDS where its trade has been done and the funds of Two Billions US Dollars has been received. As well as also should be cleared that this rate of interest would be payable every year or it could be compound for the said period. Any how this is a good effort to generate the funds for development of Pakistan. But we should keep the eyes on rate of interest.
Seems to me part of $1.5 bn given will paid back in form of over 7 percent interest indeed a very high and extremely un favorable rate in this low interest global environment. when countries like Greece understood to be defaulting are getting away by borrowing at 4 to 5 percent
Can anyone tell me either these bond are issued at par, discount or premium? Confused a bit...
This event cannot be considered in isolation.
Yes, Govt has been able to raise this huge amount but that is at a premium. Over subscription shows higher confidence but ONLY when it is at a rate marginally higher than the benchmark.
Financial Times published an amazing article yesterday about how investors are herding for junk bonds, just to justify the return on investment since interest rates are flat almost all over the developed economies. This is a pure example of that article.
Everyone knows Pakistan will not default but rather take more debt to finance the existing one. So why take advantage of this and make some money.
Just to keep matters in perspective on recent Eurobonds:
$1 billion Pakistan 5 year Eurobond: 7.25% $1 billion Bharti Airtel 5 year Eurobond: 4.05%
Govt. of India has not raised any funds from Eurobonds recently.
Great News for Pakistan. For those who are commenting on higher interest rate, they must up to date themselves as 7.25 & 8.25 is a very competitive IR as compared to other developing countries. It is totally unfair to compare Pakistan Euro Bond with US treasury bond. The thing is if you are using the this money wisely it will itself generate the revenue to payback this amount. Best of Luck Pakistan. For Ishaq Dar: you prove that you are infect Ishaq Dollar as you are the only man who can control Dollar like this way, pity Sk Rasheed.
@expert-Critic: That's the only thing these "So Called Experts" can do.
@faraz: It seems that you have very little knowledge of Economics or i doubt you people are born Pessimistic and can't digest any positive news about Pakistan
@AllaDitha: Defaulting on loans is halal, then?
@Farhan: Mispricing your bond issue is not a big achievement. It is a sign of gross incompetence.
Also, 3G auction will be paid for in rupees not dollars. The cellcos have refused to bring dollars from abroad (they are busy repatriating profits instead) and were going to buy them locally which would have lead to rapid rupee depreciation so to prevent all that the payment will be made in PKR.
To those on the high interest rate band wagon, Srilanka a much better economy than us
"Sri Lanka's previous five-year issuances in 2007, 2009 and January 2014 were priced at yields of 8.25 percent, 7.40 percent and 6.00 percent respectively."
India's sovereign bond yield is actually higher than Pak's. 10-yr yield for india is around 630 basis points above US treasury's 10-yr yield. Pakistan offering 8.25% for 10-yr bonds is nowhere on a higher side considering most of the developing nations offer yields around such rates.
@uet:
Probably because this party thinks more of international "investors" than the country.
@Asif Khan:
precisely. unless your economy begins growing 7% plus within the next 2 years, your economy will be in deep trouble.
The 10 year bond issued in 2007 - the last time Pakistan went to the global bond markets - was at 6.875%. The 8.25% rate is not a very big increase from that, considering the risk that is Pakistan's economy now. As a reminder, the worst phase of WoT started in 2008-2009.
Nations with good sovereign rating get loans at competitive interest rates. Others don't. Besides, paying interest is "haram" in Islam. Pakistan must just default on repaying this loan.
Interest rates are extremely high and more than two times the mortgage rates in USA. Think of when these bounds will be redeemed and the money Pakistan will be paying back. Overall not a great deal for Pakistan.
You sold the cuntry, Nawaza!
To all pseudo intellectuals commenting here (who don’t know abc of economics), Pakistan desperately needs cash right now. Considering Pakistan’s low credit rating, this is a big achievement of the government.
This money will immediately support Pakistan rupee and help building strong foreign reserves (what else Pakistan needs at this point).
Moreover, the country would get additional money (at least in millions of dollars) in upcoming 3G licences auction.
Dear Experts, Over subscription of bonds issued by Pakistan is one of the biggest confidence stamp we could have had by Int'l investors considering the threats to a still fragile Pakistan economy. 556 or 558 basis points more premium than the current US Treasury benchmark rate though high is not much considering the length of time for which the bonds have been issued. At the end of the day, it is Pakistan which gets to decide whether it issues $500 mio worth of bonds on this premium or more, this in addition to being a decent capital injection if properly utilized will return the premium itself without burdening the exchequer much. Kudos Ishaq Dar!
Let's be positive and hope for the best. But the trust international investors showing on Pakistani nation, despite all the troubles and turmoils, is wonderful. Let's be serious about the terrorism issue now and the bright future is waiting ahead.
I don’t think most people understand what bonds are. This would be a huge burden now, in terms of interest, and in future when bonds mature, on the people of Pakistan. Considering our current economic position, for short term gain, we have practically signed our death warrants.
Great News! Pakistan is on the radar screen of the foreign investors. We foresee FDI pouring into the country.
i don't think 100% of the oversubscription derives from the recent policy changes in various domains in Pakistan.
i would guess at least half of it is due to QE and ZIRP and the resulting excess liquidity pouring from all over.
I$haq Dar is running Pakistani economy on the Greek model. It will collapse very soon when we won't have money to pay for the compounding interests. When a trader is running the country and his accountant is responsible for the economy, everything is on the table for sale, including the motherland.
5 and 10 year bonds mean... oh well the next governments would worry about the payoffs. The interest rates are massive and will crush us deeper into debt. 2 billion will be compounding every year. This is worse than IMF loans which have softer interests.
That is a very high interest rate to pay on these bonds.
with this much high interest rate, any1 would buy it?
If it was oversubscribed like this it means that they offered too high of an interest rate. A very costly miscalculation.
Also does over-subscription mean that $2 billion worth of bonds will be issued? I don't think so.
Whether borrowing heaps of money is right or wrong, one thing it does show Intl Investors have more trust in PMLN than any party.
Waiting for "experts" to criticize this step of Ishaq Daar/PMLN as well
Great Signs for the Pak economy!
I dont see this as any achievement at all. Paying such a high interest and that too (of course in foreign currency), how does NS govt plan to pay all such amount plus interest in the long run? given the situation of inflation and devaluation of rupee?
I think these countries who donated 1.5$ billion are behind this purchase. This time they didnot donated, rather paid thru BONDS.
can GOVT tell what price tag did they put for our Nukes and retired Armed Forces
At those interest rates no wonder there is such a response! Why not go for ADB, WB loans at concessionary terms? Ahh that would actually require some work!