Pakistan likely to float $2bn Eurobonds in next few days

March 30, 2021 (MLN):  Pakistan is likely to float USD-denominated Eurobonds worth around $2 billion in the next few days to raise capital from global capital markets after the resumption of a $6 billion bailout program with the International Monetary Fund (IMF).

In this regard, Finance Ministry hired a group of banks to arrange investor calls ahead of a triple-tranche U.S dollar-denominated bond sale. It is expected that Pakistan will get a better deal and the bonds will be set at a competitive rate under the umbrella of the IMF. This will be the first global market transaction to be conducted by the incumbent government.

The settlement date for the issue is likely to be April 6, 2021.

Initial indications suggest 5-year bond bids to be between 6.0-6.5%, a 10-year bond’s between 7.2-7.7%. Interestingly, Pakistan is also trying to sell Eurobonds having a tenor of 30 years at a yield of close to 8.5-9.0% as per Director Research & Chief Economist, Syed Atif Zafar at Topline securities.

Currently, Pakistan's USD-denominated bond yields around 5.9% (having maturity in 2027) in the secondary market. The average yield over the past months for the same is around 5.8%.

The re-entry in international capital markets just two months before a fiscal budget 2022 will support investors' sentiments. Regardless of the yield, the size of these bonds will support shoring up foreign reserves to assist local currency against the greenback. Currently, the reserves are adequate for 3 months of imports, the research added.

Furthermore, S&P and Moody’s presently rate Pakistan as B- with a stable outlook while Fitch assigned Pakistan's proposed foreign-currency bonds a 'B-' rating.

In the last issue of Nov-2017, Pakistan raised US$2.5bn by offering a 5-year Sukuk of US$1bn and 10-year Eurobond of US$1.5bn at 5.625% and 6.875%, respectively.

After removing Abdul Hafeez Shaikh from the post of finance minister, Hammad Azhar has been given an additional charge of the Finance Ministry to devise pro-poor policies. As per analyst Mohammed Sohail of Topline Securities, ‘this wasn't expected as investors thought that after the IMF deal Mr. Shaikh will present the next budget also.’ He expects that market will take it negatively in the short run.

The change came weeks after Sheikh, who was given charge as the post of minister since December last year, lost a Senate seat against PPP's Yousuf Raza Gilani, raising questions about his status in the cabinet.

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