Govt floats $1b Eurobonds at 8.5% interest rate

Moves aims at building foreign exchange reserves

ISLAMABAD:

Pakistan on Tuesday floated different tenors Eurobonds worth $1 billion at up to 8.5% interest rates.

The bonds -- the first major transaction in FY 2021-22 -- have been arranged to build the country’s foreign exchange reserves.

“The government floats five-, 10- and 30-year bonds at an interest rate that range between 5.875% to 8.45%,” a senior government functionary confirmed to The Express Tribune.

Pakistan borrowed $300 million for five years at 5.875% interest rate -- which was 5.01% higher than the benchmark five-year US paper. The government also borrowed another $400 million for 10 years at an interest rate of 7.125% -- up 5.7% over the comparative US treasury rate.

It also took $300 million loan for 30 years at 8.45% -- 6.4% higher than the US treasury rates.

It was the second capital market transaction carried out by Pakistan in the last over three months when the government had borrowed $2.5 billion through Eurobonds. However, the interest rates were slightly lower than the previous transactions.

The government received over $3 billion worth of bids from foreign investors out of which it accepted $1 billion offers.

The Eurobonds interest rates were significantly lower when compared with the 7% cost that the government is paying on one-year short-term borrowings through Roshan Digital Accounts.

Compared with short-term expensive commercial borrowing, the long-term bonds are considered the preferred choice of instruments due to their longer maturity and no conditions attached.

For the new fiscal year, the government has budgeted $17 billion external new loans to repay the old debt and keep the foreign exchange reserves at their current levels.

The government conducted the capital market transaction of $1 billion amid a deadlock in talks with the International Monetary Fund. The inability to break the deadlock could create problems for the government in arranging new loans.

The government is heavily dependent on the external borrowings to meet its financing needs and to keep the gross official foreign exchange reserves at a minimum threshold.

Pakistan’s foreign exchange reserves are currently sufficient for three months of imports cover amid a surge in the import bill that crossed for the first time $6 billion mark in June. The reserves remain low despite the State Bank of Pakistan has offered abnormally high interest rates to overseas Pakistanis investing in government securities.

The rupee is currently depreciating against the US dollar and is trading at around Rs158 to a dollar.

The Ministry of Finance plans to raise Rs1.76 trillion worth debt through issuance of domestic and foreign Islamic bonds. This includes foreign Sukuk.

The finance ministry has estimated the value of Lahore airport at Rs980 billion or $6.1 billion, Islamabad International Airport Rs230 billion or $1.4 billion and Multan airport Rs320 billion or $2 billion.

The value of Islamabad Expressway is estimated at Rs470 billion or $3 billion.

The Jinnah International Airport, Karachi, has already been exhausted and the government has raised over Rs700 billion worth debt by giving the airport in collateral.