ISLAMABAD:
Pakistan has received bids from top global banks, including a surprise entry of Bank of America, to structure the upcoming sovereign bonds that the government wants to issue to raise around $1 billion debt ahead of big debt repayments.
The government plans to raise about $1 billion debt through Eurobonds in December or January, Kamran Afzal, Special Secretary, Ministry of Finance, told the media persons on Wednesday. Afzal said that 10 leading banks have submitted their financial and technical bids to structure the bond issue.
Authorities believe that the actual size of the issue will depend on the government’s external financing needs and the interest rate that the investors will offer.
The US Treasury rates remain low due to sluggish global economic growth and weakening dollar because of the pumping in of money by the Trump administration to stabilise the world’s largest economy.
Banks from Europe, America, Gulf, China and a local bank have submitted technical and financial bids for the contract of financial advisers to float the sovereign bond. Their bids will be evaluated next week and it is expected that two consortiums will be hired to put in place structures for floating the Eurobond and the Sukuk bond.
Kamran Afzal said that in the first phase the government will float the Eurobond and then the Islamic bond will also be issued, depending upon the advice from the financial advisers. This will be the first capital market transaction by the government of Prime Minister Imran Khan.
The bidders include JP Morgan, Citibank, Deutsche Bank, Standard Chartered Bank, Credit Suisse and Bank of America. The Meezan Bank, The Bank of China, the Dubai Islamic Bank and the Emirates NBD are also among the bidders.
The ministry would technically evaluate the bids next 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. Among them, the Citibank and the Deutsche Bank have remained financial advisers in the past.
The money is needed to retain the gross official foreign currency reserves at their current levels ahead of some major loan repayments to Saudi Arabi, the United Arab Emirates and other commercial creditors. The upcoming transaction will prove to be a test case of the country’s claim of international recognition of its improved economic conditions.
Although the gross official foreign currency reserves stand at $12.1 billion, the net reserves remain in negative trajectory after excluding liabilities of the International Monetary Fund (IMF), short-term borrowings from the central bank and currency swap with China.
Pakistan has planned to raise $1.5 billion by floating Eurobonds in this fiscal year, as the decision to give preference to hot foreign money in the last fiscal year proved costly. The money raised through sovereign bonds is payable either in five, seven or 10 years and the government’s decision to give preference to hot foreign money that hardly stayed for three months in most cases put additional pressure on reserves.
As against cumulative inflow of $3.64 billion into government securities in the last fiscal year, the foreign investors withdrew $3.1 billion last year, according to the central bank.
From July to November this year, the foreign investors brought in $150 million worth of hot foreign money but withdrew $439 million, resulting into net outflow of $289 million in slightly over four months of this fiscal year, showed the official statistics.
Pakistan’s inflows position remains comfortable despite the repayment of loans, said the special secretary. Afzal added that after the outbreak of the coronavirus the multilateral creditors expedited the disbursements.
The Asian Development Bank is also expected to approve $300 million loan by the end of this month, he said.
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