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March 22, 2006
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Wednesday
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Safar 21, 1427
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Plan for two-part bonds
HONG KONG, March 21: Pakistan plans to raise up to $1.25 billion through a two-part bond, a much bigger issue than expected, and some analysts said it was trying to take advantage of the cheap money sitting around to help cover its trade gap. Market sources familiar with the deal said on Tuesday the deal would comprise 10-year and 30-year tranches.
Previously, sources had said Pakistan was planning to sell a 10-year global bond and rating agency Standard & Poor’s had said on Monday, when it assigned a B-plus rating to the transaction, that the offer was for up to $1 billion.
Pakistan issued international bonds in 2004 and 2005, aiming in part to set a benchmark for investors.
Pakistan officials said the new issue was also designed to build a benchmark yield curve, but some analysts noted the money was needed to cover a growing import bill caused by rapid economic growth and high oil prices.
“Last time they sold the thing to show their face in the debt capital markets. They said they didn’t need the money. This time around, they don’t mind getting the money either,” one Hong Kong-based fund manager said.
“It’s a lot of money coming at once if they don’t price it cheaply enough,” he added.
The indicative yield for the 10-year tranche was set at 7.125 per cent, but Pakistan had yet to fix the price guidance for the 30-year tranche, the sources said.
Another fund manager, who declined to be identified, said the indicative yield on the 10-year tranche was fair and the demand for the two-part offer should be strong as the country’s ratings were likely to be further upgraded.
Moody’s Investors Service rates Pakistan at B2 with positive outlook. S&P also has a positive outlook on the country.
By comparison, B2/B-plus-rated Indonesia’s 2016 bonds were quoted on Tuesday at a yield of about 6.85 per cent.
With imports climbing at a record pace, the country’s current account deficit ballooned to $3.37 billion in the first seven months of fiscal 2005/06, which ends on June 30.—Reuters
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