ADB may be allowed bond float in Pakistan

Rupee-linked bond issue will be equivalent to $200m with minimum 2-year maturity

ISLAMABAD:

The Economic Coordination Committee (ECC), which is meeting on Wednesday, is likely to allow the Asian Development Bank (ADB) to launch Offshore Pakistan Rupee (PKR)-Linked Bonds worth $200 million for non-resident investors.

Earlier, the minimum tenor for the bonds was expected to be three years. However, in its terms and conditions sent to the government, the State Bank of Pakistan (SBP) said the bond float would be restricted to a maximum notional value of the equivalent of $200 million with minimum tenor of two years.

Pakistan has said proceeds of the bonds will be used by the ADB for project financing in priority sectors in the country. The ECC, in its meeting held on July 15, 2020, granted in principle approval to a summary prepared by the Finance Division for allowing the ADB to issue Offshore PKR-Linked Bonds to non-resident investors with some directives.

According to the directives, terms and conditions, as suggested by the SBP for the proposed bond programme, will have to be followed and the case should be resubmitted to the ECC for consideration before launching the proposed programme.

Following the ECC directives, the Finance Division consulted the central bank and incorporated its terms and conditions into the draft permission letter, which would permit the ADB to initiate the programme.

The SBP proposed that the ADB may lend to priority sectors in Pakistan. A formal permission letter will be issued to the ADB after ECC’s approval. According to the terms and conditions summarised by the central bank for the PKR-Linked Bonds, the programme will be restricted to a maximum notional value of the equivalent of $200 million with a minimum tenor of two years. Also, the bonds will be sold to non-resident investors only in offshore markets.

The SBP said the ADB would be allowed to buy or sell foreign exchange in the onshore spot forex market for the conversion of proceeds from the sale of PKR-Linked Bonds for financing its operations in Pakistan and for payments to bondholders.

All foreign exchange transactions must be entered into with an authorised dealer in Pakistan and backed by underlying transactions, it said.

According to the central bank, the proceeds of PKR-Linked Bonds will be brought into Pakistan by the ADB and will be used for project financing in priority sectors such as infrastructure, housing, renewable energy, agriculture and livestock. For liquidity management, the ADB may open a deposit/securities account.

The ADB was also requested to provide the term sheet of bond prospectus. The lender has provided a copy of the prospectus for the ADB’s GIobal Media Term Note Programme, which will be used to document any PKR-Linked Bonds floated in the international market.

This is the main documentation architecture for the ADB’s international bond issues with $100 billion of debt securities outstanding.

Regarding pricing, the ADB anticipates the bonds’ yield will be below the yield curve of Pakistan government’s domestic bonds.

Published in The Express Tribune, August 12^th, 2020.

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