LONDON, Feb 12: Pakistan's Eurobond launch lived up to high expectations on Thursday, as a heavily oversubscribed $500 million deal reopened the international market for the nation's debt.
The bonds priced at par with a coupon of 6.75 per cent, well below initial guidance of 6.875 per cent. "The bond offers investors exposure to an improving credit with great scarcity value. Most people were content to buy bonds at the tight end of the range because they were committed to participating," said George Niedringhaus, syndicate official at ABN Amro.
Pakistan last visited the international debt market in 1999, with $623 million in Eurobonds due 2005. The new bond presented a rare opportunity for investors whose appetite for high-yielding emerging-markets assets has been tested by a heavy $17 billion of new issuance so far this year.
Word from the roadshow was that the order book filled almost immediately, and orders reached $2 billion by the time it wound up in London on Wednesday. Over 200 accounts signed up for the transaction, which was lead managed by JP Morgan, ABN Amro and Deutsche Bank.
Marketing began in Bahrain on Sunday and followed up in Singapore, Dubai, Abu Dhabi, Frankfurt, Hong Kong and London. On the final day of the roadshow, syndicate officials reported that pricing had narrowed to 6.75pc-6.85pc, from initial guidance of 6.875pc.
Positive reports had raised speculation that the deal would be increased beyond the $500 million offer. "The issuer did review possibilities for an upsize but was satisfied that $500 million was appropriate," said Niedringhaus. "This was a chance to pay down existing debt, lengthen maturities and, most importantly, reintroduce (Pakistan) to the capital markets."
European accounts were heavily represented, at 54pc of total subscriptions. Buyers from Asia made up 24pc, followed by Middle Eastern investors at 11pc. The bond was not available to US onshore investors, but offshore accounts picked up another 11pc of the offer.
The majority of buyers were fund managers, at 38pc of the total, while hedge funds, traditionally seen as more opportunistic investors, accounted for 7pc. Finance Minister Shaukat Aziz flagged the deal in October last year, with emphasis on its strong prospects following the country's ratings upgrade to B2 by Moody's Investors Service. The accompanying B rating from Standard & Poor's places the sovereign one notch below Turkey.
Nevertheless, the yield on Pakistan's bond compares closely with Turkey's dollar bond due 2009. The Turkish bond launched in November last year with a much higher coupon of 11.75pc, and currently yields 6.51pc. Turkey's bond offers a 3.5pc pickup over Treasuries, compared with 3.7pc for Pakistan's bond.
With economic growth at 5.3pc and relatively low inflation of 5.1pc, Pakistan's economic fundamentals compare favourably with Turkey. The yield differential between the two can be attributed to political risk factors. Pakistan's ties with the US have improved greatly owing to the diplomacy of the government of President Pervez Musharraf over the war on terror, most specifically in ousting the Taliban regime in Afghanistan.
"On a strict credit rating, we rate Pakistan slightly better than Turkey," said Nicholas Field, asset manager at West LB. "But you have to look at each country's ability to deal with crises.
The (International Monetary Fund) and US support for Turkey is longer held, and deeper ingrained." However, he added that "at these prices, we consider both to be very expensive." -Dow Jones Newswires