Country set to repay $1b against Eurobond

SBP says it’s waiting for finance ministry’s nod to go ahead with it

KARACHI:

Pakistan is set to repay a foreign debt worth $1 billion against a 10-year Eurobond maturing in the middle of the ongoing month.

This will reduce the stock of the debt acquired through selling Eurobonds and Sukuks in international markets to below $7 billion.

The State Bank of Pakistan (SBP) told The Express Tribune that it was ready to repay the bond anytime and waiting to receive instructions to do so from the finance ministry.

The maturing Eurobond 2024 hit a new record high price at $1 per unit on the global investors' optimism that Pakistan would repay it at or before maturity on April 15 after the country’s foreign exchange reserves improved significantly to over $8 billion.

This has enhanced the country’s capacity to repay all the upcoming maturing foreign debt on time.

Topline Securities CEO Muhammad Sohail recalled that Pakistan had repaid the last Eurobond of $1 billion days before its maturing date in December last year despite facing a foreign exchange reserves crisis at that time.

He added that the Pakistani 2024 bond had rallied by more than 160% -- excluding coupon and interest payment -- in the last 18 months, mostly after Pakistan secured the International Monetary Fund (IMF) loan package of $3 billion in late June 2023.

SBP Governor Jameel Ahmad said Pakistan had fully arranged repayments against the debts in the ongoing fiscal year 2023-24, including the $1 billion Eurobond maturing in April this year.

The Topline Securities CEO observed that Pakistan had not only successfully repaid its $1 billion Eurobond in 2023 despite the then financial crisis but also managed to bolster its foreign exchange reserves held by SBP, currently standing at $8 billion -- excluding the $5 billion in the possession of the country’s commercial banks.

“Earlier, concerns loomed large as foreign exchange reserves fell below $3 billion in February last year raised fears of a potential default on bond repayments,” he added.

Following the repayment of $1 billion in April, Pakistan's foreign exchange reserves will experience a decline.

However, the anticipated IMF tranche of $1.1 billion, likely to be received by the end of April, is expected to restore the reserves back to over the $8 billion mark.

Furthermore, Sohail said the recent increases in inflows from foreign portfolio investors purchasing shares at the Pakistan Stock Exchange (PSX) and treasury bills, coupled with the SBP’s gradual acquisition of US dollars from the market, were contributing to the management of regular debt repayments.

The price of the Eurobond worth $500 million, maturing in September 2025, has increased significantly currently hovering at 96.2 cents per US dollar after Pakistan achieved the IMF staff-level agreement for the last tranche of $1.1 billion last month.

The prices of other global papers also improved along with the two maturing ones in 2024 and 2025.
Pakistan’s total eight Eurobonds and Sukuks are trading in global markets at $7.8 billion, maturing by up to April 2051.

Federal Finance Minister Muhammad Aurangzeb has floated the idea of selling Panda bond in the Chinese market to raise $300 million.

This will help in stabilising the foreign exchange reserves and support the local currency to remain stable at the current strong level of Rs277.93 per US dollar.

Former caretaker finance minister Dr Shamshad Akhtar had decided against entering the international debt markets to float new bonds considering that they remained tight amid the significantly high interest rate of the country.

Pakistan's stable currency has played a critical role in boosting foreign investor confidence in the domestic economy and its debt instruments.

The Pakistani rupee has emerged as the best-performing currency in the region, appreciating by 3.1% to $177.93 against the greenback in the current fiscal year 2023-24 so far, according to the data compiled and reported by Topline Research.

To recall, the domestic currency has improved 10.5% or over Rs29 in the past seven months, hitting a five-and-half-month high at Rs277.84 per US dollar this week.

This was against its all-time low closing at Rs307.10 per US dollar in the first week of September last year.

Tresmark, a treasury firm, in its latest weekly commentary on Saturday said the Pakistani rupee would remain stable till end of current fiscal year on June 30, 2024, moving in a narrow band of Rs277-280 per US dollar in the short-run.