ISLAMABAD, Dec 21: Pakistan's $500 million Eurobond, launched in February 2004, has been declared the best deal award by FinanceAsia.com, a Network for Financial Decision Makers.
"Ironically, one of the most stable deals of the year has come from one of the region's historically most unstable countries, Pakistan," the Network said. FinanceAsia.com based in Hong Kong, and is considered the best journal on international capital market, said that it has been a strange and not particularly easy year for the region's non-investment grade borrowers as investors have been extremely skittish.
Deals that priced early in the year widened soon afterwards. Those that tried to come in the middle often found they couldn't come at all. Like the Republic of Indonesia, which priced a sovereign bond around the same time, the Pakistan sovereign secured tight pricing. Unlike the Indonesia's deal, Pakistan's five-year offering has continued to trade above par and provide investor with a decent return.
"This has been no small feat given Pakistan's bad track record in the international bond markets. It has also been all the more impressive for being achieved against the backdrop of the war on terror being fought on its doorstep."
It was the country's economic achievement, which underpinned pricing through many of the B2/B-rated company's direct comparables. Principally there was the Republic of Philippines, which then had a Ba2/BB rating, some three notches to four notches higher.
Pakistan priced its bond at par on coupon of 6.75 per cent to yield 370bp over Treasuries, or 335bp over Libor. The Philippines was trading 43bp wider. "So too, Pakistan priced through comparable corporate credits such as Indonesia's PT Indosat, rated B+/B2. At the same time of pricing, Indosat had a 2010 bond outstanding at 7.44 per cent.
Investors applauded Pakistan for cutting budget deficit and bringing down its debt servicing costs from 63 per cent of fiscal revenue in 1999 to 36 per cent in 2003. Whereas the Philippines credit has been propelled by downward ratings momentum all year, Pakistan has enjoyed upwards momentum.
The bond deal signalled investors' renewed faith in the country and so far it has been rewarded. "Today, the Pakistan deal is trading at 102.56 per cent to 6.04 per cent or 233bp over Libor".
