Pakistan raises $2.5bln via Eurobonds

ISLAMABAD: Pakistan has raised $2.5 billion through a multi-tranche transaction of dollar-denominated Eurobonds as it entered the international capital market after a gap of over three years, officials said on Thursday.

The transaction generated great interest as leading global investors from Asia, Middle East, Europe and the US participated in the global investor calls and the order book, said the officials.

The conventional bonds were oversubscribed almost two times with estimated prices of 6 percent for five-year, 7.375 percent for 10-year and 8.875 percent for 30-year bonds.

Currently, Pakistan dollar-denominated bond with maturity in 2027 yields around 5.9 percent in the secondary market. The average yield over the last 3-month for the same is around 5.8 percent. In last issue of November 2017, Pakistan raised $2.5 billion by offering 5-year sukuk of $1 billion and 10-year Eurobond of $1.5 billion at 5.625 percent and 6.875 percent, respectively.

Officials said this is for the first time that Pakistan has adopted a program-based approach with registration of global medium-term note program, which will allow the country to tap the market at short notice.

“The government intends to make full use of this program and become a regular issuer in the international capital markets,” said an official.

With robust inflows of foreign debts, Pakistan’s external imbalances have improved significantly. The current account deficit fell to 1.1 percent of GDP in FY 2020 and turned into a surplus of 0.4 percent of GDP in the first half of FY2021, according to the International Monetary Fund’s (IMF) country report.

“The main drivers include the fall in oil prices, increase in inflows of remittances, import compression following the decline in domestic demand, and a mild export recovery (notably in textiles),” it said. “More recently, imports show signs of recovery in line with stronger economic activity and higher oil prices. International reserves grew to $13.4 billion by end-December 2020 amid continued official and private inflows, and foreign exchange purchased by the SBP.”

In March, IMF completed the second through fifth reviews of the extended arrangement under the $6 billion extended fund facility for Pakistan.

The decision allowed for an immediate disbursement of about $500 million, bringing total purchases for budget support under the arrangement to about $2 billion.

IMF forecast the current account deficit to widen to 1.5 percent of GDP during the current fiscal year, as a result of the recovery and it should continue to gradually widen toward 3 percent over the medium term with stronger imports triggered by revived domestic demand and exports.

“However, the market-determined exchange rate, together with adequate monetary policy, would help strengthen reserve cover to over 3½ months of imports by FY2025,” it said.