Amid declining reserves, Pakistan set to start borrowing journey

Will hold roadshows starting today in bid to raise $3 billion

ISLAMABAD: After a little over a year, Pakistan will today (Wednesday) hold road shows in the Middle East and the United States as it looks to borrow up to $3 billion by floating Islamic and conventional bonds.

The country, currently suffering from declining foreign exchange reserves, wants to finalise the bond issue on November 29 in New York.

The government is trying to tap the international debt markets at a time when there is excess liquidity and the benchmark interest rates are not too high. However, there is more domestic political uncertainty compared to September 2016, the last time Pakistan approached international markets for the bond issue. Former prime minister Nawaz Sharif was still at the helm and government continuity was not being seriously questioned. Also, instead of Finance Minister Ishaq Dar, Dr Miftah Ismail is now leading the Pakistani team.

Prime Minister Shahid Khaqan Abbasi has picked Ismail who is Special Assistant to PM on Economic Affairs. The other members of the team are Secretary Finance Shahid Mahmood and State Bank of Pakistan Governor Tariq Bajwa.



By choosing Ismail, the premier has indicated his preference amid noise to replace Dar who is facing corruption charges and a process has been initiated by an accountability court to declare him a proclaimed offender.

Pakistan is going to float the bonds in its largest transaction to take pressure off the central bank’s foreign exchange reserves that are depleting at a rapid pace. Earlier, the government borrowed $2 billion in 2014 through similar capital market transactions.

The central bank’s official foreign currency reserves have depleted to $13.6 billion due to mounting trade and debt related payments. The current account deficit widened to over $5 billion during July-October period of this fiscal year - higher by almost 122% over the same period of the last fiscal year.

Last time, Pakistan had floated Sukuk in September 2016 at the lowest interest rate of 5.5% but its September 2015 five-year Eurobond at 8.25% was the most expensive deal.

The road shows would begin from Dubai. The next stopover will be in London and after that the team will leave for the United States, said an official of the finance ministry.

Early this month, the federal cabinet had allowed borrowing of up to $3 billion from international debt markets by floating sovereign bonds and also waived off a dozen taxes to make deals attractive for investors. According to the summary approved by the cabinet, the finance ministry can float multiple bonds in the range of $2 billion to $3 billion.

The government wants to close the deal by November 29.

The government will try to float the bonds at “very optimal pricing” and the volume will also be flexible, depending upon the pricing, said finance ministry sources.

A consortium of banks have initially indicated that five-year Sukuk (Islamic bond), ten-year Eurobond and another 30-year Eurobond with combined proceeds of around $2 to $3 billion can be floated, according to the finance ministry.

The exact size will, however, be determined on the basis of market appetite and pricing, according to the summary signed by the finance secretary.

The government will pitch a minimum $1-billion Sukuk bond of five-year tenor, backed by a section of M3 motorways. It will also float a ten-year Eurobond and issuance of the 30-year bond would depend upon the response of the investors.



It could be for the second time that Pakistan will float a 30-year dollar-denominated Eurobond, but the decision to sell it will depend on the interest rates investors seek. Higher maturity bonds are issued at relatively higher interest rates.

Countries having credit rating like that of Pakistan successfully execute capital market transactions at an interest rate ranging from 6.875% to 7.125%.

Pakistan on Monday signed the legal agreement with a consortium comprising Standard Chartered Bank, Industrial and Commercial Bank of China, Citibank, Deutsche Bank, Dubai Islamic Bank and Noor Bank for the Sukuk transaction.

It also signed the agreement with Standard Chartered Bank, Industrial and Commercial Bank of China, Citibank and Deutsche Bank for the Eurobond issue.

Published in The Express Tribune, November 22^nd, 2017.

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