A vendor arranges 10 and 20-rupee Pakistani bank notes in a display shelf at a commercial area in Karachi. PHOTO: AFP
The government has received a very encouraging response as top European, American and Chinese banks have submitted technical and financial bids for the contract of financial advisers to float sovereign bonds, said Ministry of Finance officials.
The ministry received ten bids from prospective financial advisers and two consortiums will be hired to put in place structures for floating Eurobond and Sukuk bonds during the next year, they said.
The first capital market transaction by the government of Prime Minister Imran Khan may take place within one month. The government is keen to complete at least one major transaction in the range of $1 billion to $2 billion next month.
The money is needed to return a $1 billion loan taken by the government of former prime minister Nawaz Sharif in November 2014. The upcoming transaction will prove to be a test case of the country’s claim of international recognition of its improved economic conditions.
In response to an ad placed by the Ministry of Finance, ten bidders submitted technical and financial offers. These include JP Morgan, Citibank, Deutsche Bank, Standard Chartered Bank, and Credit Suisse.
The Bank of China, Industrial and Commercial Bank of China and CLSA Capital Markets Limited have submitted their technical and financial bids. From the Gulf, the Dubai Islamic Bank and Emirates NBD are the bidders.
The ministry would technically evaluate the bids this week and after that their financial bids will be opened. The other bidders may be asked to match the price of the lowest bidder to form a consortium.
Citibank and Deutsche Bank have also remained financial advisers in the past.
The Credit Suisse AG Group has won a bid to provide financial advisory services for one of the biggest privatisation transactions of two-LNG fired power plants that are expected to fetch around $2 billion for cash-starved Pakistan.
Unlike in the past when Pakistan had hired transaction-specific financial advisers, this time the government is going to hire the consortiums for one year aimed at saving time being consumed in completing the process. This will give the Ministry of Finance an opportunity to hit the global capital markets at an appropriate time to raise funds at a relatively better price.
The country is expected to raise at least $1 billion to $2 billion through the upcoming Eurobond and Sukuk offers. However, the officials believe that the actual size will depend on the government’s external financing needs.
Pakistan needs these funds to maintain its official foreign currency reserves at current minimum levels ahead of the $1 billion repayments. In November 2014, the then PML-N government had borrowed $1 billion through Sukuk bond at a profit rate of 5.625%.
The Sukuk will mature by end of November and the government will have to raise loans before that to keep the reserves at this level and also to meet the International Monetary Fund condition of Net International Reserves (NIR) for the end-December period. The end-Dec NIR target is negative $16.3 billion.
Pakistan will also pay $399.5 million in interest on all the outstanding amounts of Eurobond and Sukuks in this fiscal year. In addition to that, the $2.3 billion worth of commercial loans would also mature in this fiscal year. This includes $1.7 billion of China Development Bank, $300 million of Bank of China, $100 million of Standard Chartered Bank and $200 million of Credit Suisse.
The gross official foreign currency reserves stood at only $7.7 billion as of October 4, despite a $1 billion IMF loan and a $500 million loans by the Asian Development Bank. The reserves also include $340 million foreign banks’ investment in government securities.
State Bank of Pakistan Governor Dr Reza Baqir and Adviser to PM on Finance Dr Abdul Hafeez Shaikh have held meetings with foreign banks to pace funds in the government security –what the experts call a risky venture.
Both are also expected to hold meetings with the bankers on the sidelines of the World Bank-IMF annual meetings, being held in Washington this month. For this fiscal year, the IMF has estimated Pakistan’s gross external financing requirements at $25.6 billion. The available projected financing is $27.5 billion that includes $1 billion on account of Euro and Sukuk bonds.
However, in the budget documents, the Ministry of Finance has booked $3 billion on account of sovereign bonds. The Ministry of Finance officials said the government may raise funds in small transactions aimed at getting a good price.
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