Govt raises $500m at 7% interest

ISLAMABAD:

Pakistan on Friday raised a $500 million debt at 7% interest rate by floating Eurobonds and has separately requested the Bank of China to give an extension in submitting an application for its permission to float $250 million Panda bonds in Chinese markets next month.

Pakistan raised $500 million as a private placement through Standard Chartered Bank, and there was no competitive bidding, said finance ministry officials.

Taking advantage of its new positioning on the global map, Islamabad ventured for the first time into global capital markets with a highly speculative credit rating of B negative after four years. It raised the debt at 6.975% interest rate for a period of three years.

The Ministry of Finance announced on Friday that the government returned to international capital markets after a four-year hiatus with the issuance of a $500 million Eurobond. The three-year Eurobond witnessed strong investor demand despite ongoing global market and geopolitical uncertainties, signalling renewed confidence in Pakistan's economic outlook, said the ministry.

Khurram Schehzad, Adviser to the Finance Minister, said there was strong investor demand in a challenging global environment. He said this has strengthened Pakistan's positioning in international capital markets, as the transaction reflected improving investor sentiment and marks an important step in Pakistan's strategy to diversify funding sources and rebuild a sustainable market presence.

Pakistan remains highly dependent on foreign lenders to stay afloat, and its reserves are largely built on the back of cash deposits by Saudi Arabia and China, new foreign loans and purchases of dollars from local markets. Exports plunged 8% during the first nine months of this fiscal year, and remittances were the only non-debt creating inflows helping Pakistan keep its external sector stable.

Panda Bonds

Meanwhile, Pakistan's plans to enter Chinese debt markets are already falling behind schedule. Finance Minister Muhammad Aurangzeb has twice made requests to Bank of China Governor Dr Pan Gongsheng in the past two weeks to extend deadlines to meet regulatory requirements, underscoring his desire to enter Chinese debt markets.

Multiple deadlines to float the bonds have been missed during the past year due to the wrong selection of projects that will be funded using the debt proceeds and additional regulatory requirements that the National Association of Financial Market Institutional Investors (NAFMII) identified while reviewing Pakistan's request. NAFMII is the Chinese capital market regulator, and without its registration Pakistan cannot enter the debt markets.

The sources said that while granting in-principle approval earlier, NAFMII had set an April 3 deadline to submit the complete application, along with the signed letter of guarantee from the Asian Development Bank (ADB) and the Asian Infrastructure Investment Bank (AIIB). Pakistan missed this deadline too, and the finance minister reached out to the Bank of China governor two days before its expiry to get an extension. Later, he requested the governor on Wednesday in Washington on the sidelines of an IMF meeting and sought approval of Pakistan's request.

The sources said the finance minister requested the Chinese central bank governor for "an extension in the timeline," hoping to complete discussions with the ADB and AIIB within one month.

Because of its weak credit rating, Pakistan cannot directly access Chinese debt markets and has sought credit guarantees from the ADB and AIIB. Both banks agreed to provide guarantees for the Panda bond issuance on the condition that the loan would fund sustainable, green projects. However, sources said the projects were selected hastily without adequate due diligence, leading to delays and embarrassment for Pakistani authorities.

The ADB and AIIB agreed to provide guarantees only after Pakistan committed to using the funds for environmentally friendly projects. In return, the lenders will charge fees ranging from 0.8% to 1.25%, according to sources.

Pakistan informed the Chinese central bank this month that completion of necessary steps for the issuance of Panda bonds was at an advanced stage and the transaction was targeted for completion in May 2026. Floating Panda bonds is critical for Pakistan, as the expected proceeds are part of this fiscal year's external financing commitments finalised with the IMF.

However, the application for the Panda bond was submitted to NAFMII on December 31, 2025, and has since undergone two rounds of review. In his request, Aurangzeb apprised the Chinese central bank governor that NAFMII's objections have been addressed. He said there were some delays in securing letters of guarantee from the ADB and AIIB due to additional regulatory requirements.

Aurangzeb told Chinese authorities that the identification of green projects and agreements with the ADB and AIIB was a protracted process. This has delayed the provision of the letter of guarantee from the respective multilateral development banks, but it is expected to be completed in the coming weeks.

A spokesman for the finance ministry said Pakistan submitted its application for the issuance of its first-ever Panda bonds in Chinese capital markets to NAFMII well in time. Pakistan has resubmitted the application, which is a routine process, and expects approval soon, said the spokesman.

When asked about the ministry's inability to complete the Panda bond process on time, the spokesman said that procedural requirements by NAFMII, coupled with annual Chinese holidays and time required by Pakistan to meet additional requirements, delayed the process. The finance ministry ruled out the need for any internal investigation to determine the factors behind the delay, and the spokesman said, "the Ministry of Finance actively pursued the whole programme and the whole team pursued the matter actively".

The finance ministry also categorically denied any Indian role in obstructing Pakistan's efforts to float these bonds. 'It is unfounded that India played a role of spoiler,' said the spokesman.

The spokesman said the letter of guarantee with the ADB and AIIB has been agreed and will soon be signed with both banks. "There is no delay, and both multilateral development banks have facilitated the government throughout the process."

There is a possibility that the prime minister may appoint Nasheeta Mohsin as the new executive director to the ADB next week.