Dar hails investor confidence as Pakistan's Eurobonds subscribed three times over

Bonds were over-subscribed, receiving offers of $5.2 billion, but only offers totalling $2 billion were accepted.


Shahbaz Rana April 09, 2014
This is the highest amount that Pakistan has ever raised in a single attempt. DESIGN: FAIZAN DAWOOD

ISLAMABAD: In the largest ever single transaction, Pakistan has been able to raise $2 billion from international debt markets through the issuance of five- and ten-year dollar-denominated Eurobonds, taking a giant step towards meeting the International Monetary Fund (IMF) condition of increasing its gross official reserves to $9 billion.

It was the highest amount that Pakistan has ever raised in a single attempt, which according to analysts shows the increasing confidence of international investors in government policies.

The bonds were highly over-subscribed, receiving offers of $5.2 billion, but only offers totalling $2 billion were accepted, Ministry of Finance spokesperson Rana Assad Amin told The Express Tribune.

Amin added that against the initial expectations of $500 million, the investor response was overwhelmingly strong and the order-books were oversubscribed across the two tranches, consisting of over 400 orders from high quality investors.

Finance Minister Ishaq Dar speaking at the US Institute of Peace during his visit to Washington, commented on the Eurobond that the demonstration of massive response to Pakistani sovereign paper is unprecedented.

“The multilateral donors and international markets have reposed tremendous confidence in Pakistan’s economic future.”

The government has raised $1 billion for five years and another $1 billion for ten years, according to details issued by the Finance Ministry. However, the government will be paying a high cost for venturing into international debt market after a gap of seven years.

The $1 billion raised for the five-year tenure have a fixed rate of 7.25%, 5.58 % over and above the benchmark five-year US Treasury rate. The $1 billion were generated through ten-year bonds at a fixed rate of 8.25%, which is 5.56% above the corresponding 10-year US Treasury benchmark rate.

In 2007, the Musharraf government had issued ten-year bonds at 6.75% interest rate, which was 3.25% above the US treasury rates at that time.

Against the high premium that Islamabad chose to pay, Sri Lanka on Tuesday sold $500 million of five-year bonds at 5.1%. Pakistan has a junk credit rating of Caa-1 by Moody’s Investors Service, which increased cost of borrowings.

Under the $6.8 billion bailout package, the IMF has asked Pakistan to increase its gross official reserves to $9.4 billion by end of June this year. As of end March, the gross official reserves stood at $5.17 billion, requiring the government to raise another $4.3 billion in three months. After the successful issuance of Eurobonds, the government is betting on the World Bank and the Asian Development Bank to meet the remaining shortfall.

According to the Ministry of Finance, the five-year bonds were distributed across all major geographic regions with 59% going to US investors, 19% to UK investors, 10% to investors in mainland Europe, 10% to investors in Asia and 2% to investors elsewhere. Fund managers took 84% of the five year issue, banks took 8%, hedge funds took 7%, and insurance companies and pension funds got 1%.

The Finance Ministry said that the ten-year bonds were distributed 61% to US investors, 21% to UK investors, 12% to investors in mainland Europe, 5% to investors in Asia and the Middle East and 1% to investors in other regions. Fund managers took 86% of the ten-year issue, hedge funds took 9%, banks took 4%, and insurance companies and pension funds took 1%.

Two Pakistani teams had held the road shows. A team headed by the Finance Minister Ishaq Dar visited Dubai, London and New York and another team headed by the Finance Secretary Dr Waqar Masood visited Singapore, Hong Kong, Los Angeles, San Francisco and Boston.

Disclaimer

The bonds have not been and will not be registered under the United States Securities Act of 1933, or with any securities regulatory authority of any state or other jurisdiction of the United States. They may not be offered or sold in the United States unless they are registered under the Securities Act, or are offered and sold pursuant to an exemption from the registration requirements of the Securities Act.

The investment instruments are being offered and sold outside the United States, and inside the United States only to qualified institutional buyer within section 144a of the Securities Act.

The securities have not been approved or disapproved by the US Securities and Exchange Commission, any state securities commission or any other regulatory authority in the United States.

COMMENTS (22)

Fahd Sheikh | 7 years ago | Reply

Extremely unfair of ET not to publish my previous comment since it was against the Eurobond issue and maybe ET is supportive of Mr. Ishaq Dollar's Eurobond fiasco. What a pity ET.

Blithe | 7 years ago | Reply

@Mehdi Mudassir: ET, you should moderate this character. How can you allow anyone to incite going against the constitution???!??

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