Pakistan finalises two consortiums to raise another $2b

Plans to float dollar-denominated Euro and Sukuk bonds to reduce pressure on balance of payments

ISLAMABAD: Pakistan has finalised two consortiums of financial advisors to float dollar-denominated Euro and Sukuk bonds as the country seeks around $2 billion aimed at taking pressure off the balance of payments’ position.

The Eurobond consortium would comprise of four international commercial banks. The Sukuk bond consortium consists of six banks, said officials in the Ministry of Finance. The financial bids were opened on Tuesday.

Citibank, Deutsche Bank, Standard Chartered Bank and Industrial & Commercial Bank of China (ICBC) will be mandated to arrange the Eurobond transaction. The government will pitch a minimum $500-million bond but will try to raise at least $1 billion through the Eurobond, said the officials.

In September 2015, the government had issued Eurobonds valuing $500 million with a 10-year maturity in the international market at an interest rate of 8.25%. It offered 6.12% above the US Treasury rate for the bond, making it one of the most controversial deals.

The Sukuk bond consortium of financial advisors consists of Citibank, Deutsche Bank, Standard Chartered Bank, ICBC, Dubai Islamic Bank and Noor Bank JSPC, said the officials. Again the government will pitch $500 million Sukuk bond but will try to raise over $1 billion, said the officials. The M3 Motorway (Pindi Bhattian-Faisalabad) would be pledged in collateral to raise loans through the Sukuk bond.

In September last year, the government raised $1 billion by floating Sukuk bond at 5.5% interest rate.

The combined size of the two deals could go up to $2 billion or $3 billion, one banking official said on Wednesday.

The finance ministry did not respond to a request to comment.

The officials said that the DIB and ICBC had given the lowest financial bids, quoting 1.5% less fee than offered by three Europe-based banks. The finance secretary asked the three commercial banks to match the fee, if they wanted to become part of the consortium, said the officials.

They said that the Ministry of Finance was not officially announcing the financial advisors consortiums, as it was waiting written concurrence of three European-based banks to match the lowest bids. But their local representatives have already given the verbal concurrence, said the officials.

This time the government was expecting better price due to availability of liquidity in the international markets. In recent months, Abu Dhabi, Saudi Arabia, Jordan, and Yemen have raised debts from the international markets and their bids were significantly over subscribed.

But the fluid political situation in Pakistan and the desperation to raise loans to protect the official foreign currency reserves could affect the overall price, said the officials.

Pakistan is rated B by Standard & Poor’s, B3 by Moody’s and B by Fitch. Pakistan’s ratings are stable for the last couple of years that could also help it get a better price.

The finance ministry is targeting November 15 to conclude the transactions. The country’s external sector position has significantly weakened due to the current account deficit that swelled to $3.6 billion in the first quarter - 117% more than the corresponding period of the previous year.

Due to the growing current account deficit, official foreign currency reserves are constantly under pressure and depleted over $2 billion in the past three months alone. The official reserves stood at $14.2 billion as of October 13.

The global bonds and borrowings from the commercial banks has remained the preferred choice of the finance ministry that has raised $10.8 billion by utilising these two modes since 2014.

The Senate Standing Committee on Finance is already investigating the 2015 Eurobond issuance. The Standing Committee has been trying to determine whether the money invested by foreigners in the dollar-denominated bonds had actually flown from Pakistan.

It has twice decided to call the representatives of three international banks, which the government had hired to float $500 million worth of Eurobonds. The government hired Citibank, Deutsche Bank and Standard Chartered Bank for the bond float.

But each time the finance ministry did not let it happen but the issue remains pending till date.

Published in The Express Tribune, October 26^th, 2017.

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