December 30, 2020 (MLN): The federal cabinet has allowed in principle, Water and Power Development Authority (Wapda) to issue Eurobonds in the international market for raising $500 million to meet foreign financing needs for Mohmand and Diamer-Bhasha dam projects.
Sources close to Secretary Water Resources told Business Recorder that the approval is subject to necessary modalities to be finalized at par with similar securities in consultation with the Finance Division and State Bank of Pakistan.
For the construction of these two projects which is currently underway, Wapda needed a total of $2.025 billion in foreign financing. In order to arrange the required foreign financing, Wapda was embarking upon a multi-pronged strategy, which included assistance from multilateral donor agencies/friendly countries, syndicate loans, and Eurobonds, Business Recorder said.
Wapda also approached AIIB and Middle Eastern donors through the Economic Affairs Division (EAD) to access concessional financing on competitive terms. Final outcome was yet to be decided.
Pertaining to Syndicate loans, Wapda stressed that these loans were available for a period of 1-2 years at best and these short tenor loans did not match with the implementation periods of Diamer Basha and Mohmand Dam which was about 60 months for the former and 86 months for the latter. Eurobonds, having a maturity of 7-10 years are therefore a natural tool of choice as it will not only match the long breeding period of these projects, but it will also diversify wapda’s liquidity pool.
The issuance of Eurobonds involves several steps starting from conducting Non-Deal Roadshows (NDR). Other steps included obtaining international credit rating, hiring of Global Coordinator/Lead Arranger, appointing the transaction parties (legal counsel, Trustee, listing venue, etc.), and preparing prospectus & legal documentation, etc. Wapda, with the approval of the Prime Minister, conducted NDRs for the purpose in July-August 2018 and April 2019, in Far-East, Dubai, and the UK, sources told Business Recorder.
Sources also told that during this process, a total of 57 institutions, comprising leading international institutional investors, hedge funds, and insurance companies, with assets under management ranging from a few billion to trillions of dollars were approached. Meanwhile, it is important to note that Wapda obtained the Letter of Comfort from Finance Division for its credit rating process, as investors heavily rely on the assessment of the rating agencies in gauging the creditworthiness of the issuer. Ahead of wapda’s move to float Eurobonds, the authority had been assigned a Long-tern Foreign and Local-Currency Issuer Default Rating of “B” with a stable outlook by the all top three international credit rating agencies including Fitch, S&P, and Moody’s.
This has enabled the Authority to secure financing at the most favorable terms as Wapda’s credit rating was now equal to the government of Pakistan’s rating and therefore it could raise funds without government guarantee in the international market.
To highlight, earlier, this month Water Resources had tabled a summary before the ECC, seeking approval to allow Wapda to issue Eurobonds. The ECC of the cabinet, which met last week formally approved the issuance of $500 million Eurobonds in principle and directed to work out modalities in consultation with the Finance Division and the State Bank of Pakistan (SBP).
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