Pakistan issues $500 million Euro bond

Reuters Published September 25, 2015

KARACHI: Pakistan has issued a new 10-year bond of $500 million in the international Euro bond market, the finance ministry said Friday, at a coupon rate of 8.25 per cent.

A finance ministry team comprising Finance Secretary Waqar Masood Khan and Governor State Bank of Pakistan Ashraf Wathra held road shows to launch the bond in London, Los Angeles, Boston and New York. The pricing of the bond was held on September 24, the ministry said.

The finance ministry said the issue was twice over subscribed.

"The economic downturn in China and uncertainty created by Fed decision has punctuated the weak market conditions forcing cancellation of planned issues by several issuers having strong credit ratings," the ministry said in a statement.

"Under the circumstances, the finance minister with the approval of the prime minister, decided that it would be prudent to restrict the issue to the intended and announced level of $500 million in order to cover the forthcoming maturity in March 2016 of a bond issued in 2006," the ministry said.

Pakistan's inflation has fallen to its lowest in 12 years and foreign reserves have risen, largely thanks to low international oil prices, but foreign investment remains low.

Little progress has been made in improving tax collection or reforming the energy sector since Prime Minister Nawaz Sharif came to power in 2013, and the country remains vulnerable to price shocks once the global oil market recovers.

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Abu Hamza

Sep 25, 2015 02:37pm

Base rate in USA &Europe is less than 1%...but our gov is offering over 8%. Senseless!

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rizwan khan

Sep 25, 2015 02:52pm

They've got their own money invested in this scheme

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Sep 25, 2015 03:09pm

@Abu Hamza Says all about creditworthiness

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Azhar

Sep 25, 2015 03:10pm

@Abu Hamza - if not who will buy these bonds? Is there any trust on the government that it will repay.

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Ray Ray

Sep 25, 2015 03:11pm

People of Pakistan must stand up against the govt. for issuing bond at a very very expensive and high interest rate. Who will pay back this money. And where this money will be spent for betterment of Pakistan. The govt must answer these questions.

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Azhar

Sep 25, 2015 03:15pm

Its the strategy of the developed world. Funds the countries like Pakistan via IMF and World Bank. Make them fully indebted. Try to take as much as you can by the way of high interest. And then corner it with all financial crisis. Then the country will have no choice but to do what they want. Its just a like a farmer who is trapped in debts. Whatever he produce will go free to the lenders. Pakistan will become like that. Today it exists with foreign funds. Tomorrow it becomes like bonded labourers. This the simple economic theory.

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Saeed

Sep 25, 2015 03:30pm

At 8.5% interest rate, these bonds are disaster for the future of Pakistan. Request to the opposition parties and to all others , please raise this issue at an appropriate forum.

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Muhammad Umar Sajjad

Sep 25, 2015 04:21pm

The cuppon rate is very high ,... What's the reason? I am unable to understand...

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Feroz

Sep 25, 2015 04:46pm

This is ridiculous. An 8.25% interest rate in Euros is astounding when Emerging Market currencies are falling. An annual five per cent depreciation in currency will significantly impact the cost. When junk bonds globally trade at yields of approximately 6%, the coupon rate of 8.25% looks extravagant.

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Irshad Khan

Sep 25, 2015 04:53pm

How much more liability and Loans Pakistan can afford before it goes completely bankrupt.

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Rao

Sep 25, 2015 05:01pm

If Pak politicians get distracted by many problems at home abroad, things will get never fixed. So keep it your course and proceed dead ahead. All will then be OK!

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Oshkosh

Sep 25, 2015 05:29pm

Minister and Governor of Pakistan Bank done a road show in many western cities to raise fund, it must be the first in the World.

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Shahid

Sep 25, 2015 05:35pm

What ever haevy sounding finacial terms like coupon rate, Euro bond etc are used to impress common citizens like me, the fact remains that these bonda are being issued to cover up the bond( read loan taken) issued in 2006. If this stays the state of economy, which I am sure will be in light of capability of current leadership, government in 2025 will be issuing new bonds to cover maturity of today's issued bonds.

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Shakil Ahmed Khan

Sep 25, 2015 05:46pm

why issue bond at 8.25% when you can easily get lower rate loan and repay the previous bond but no they are getting us more and more in debt and our children as well!

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ahmad

Sep 25, 2015 05:58pm

@Azhar don't worry sir, we will catch Greece very fast

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Iqbal Khan

Sep 25, 2015 05:58pm

@Abu Hamza its a 10 year bond. You need to compare the bond yield with the inflation rate of a country. Not compare a 10 year yield to a base rate of another country which doesn't have inflation

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Sep 25, 2015 06:06pm

@Saeed : PML-N government will take the money today and they won't be in power when the bond mature so return on investment will be someone else headache and of the nation

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Mohit (USA)

Sep 25, 2015 06:23pm

AS per world bank Pak GDP growth in last year was 5.4%(http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG) and they are borrowing money at 8.5%... They better put the money in something which can yield more than 8.5%... Good Luck..

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Kk-Atlanta

Sep 25, 2015 06:52pm

@Azhar Sir, the developed country never force the not so developed to come and borrow from them. In Pakistan's case, it receives a significant amount in aid as well. About time for the government and public to unite in rooting out corruption, be forward thinking and try to get the country out of the gutter. First step would be some self introspection and not blame others, rely on conspiracy theories or cheap rhetoric.

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ahmad

Sep 25, 2015 06:58pm

@Azhar but this does not matter to those who always have choice to settle down in another country, like most of our LEADERS. If we pass a simple law that that any responsible position holder cannot have assets outside the country, you will see many pleasant effects in the country. but why would they pass such law?

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SANDEEP

Sep 25, 2015 07:14pm

Elephant in room Dar is borrowing to pay old borrowing !! "Under the circumstances, the finance minister with the approval of the prime minister, decided that it would be prudent to restrict the issue to the intended and announced level of $500 million in order to cover the forthcoming maturity in March 2016 of a bond issued in 2006,"

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Sep 25, 2015 07:20pm

Sir, This is an other attempt of Nawaz and the finance minister to borrow more money at high interest for their own pockets. There is no hope for the Pakistan.

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Nptigo

Sep 25, 2015 07:28pm

Those who are questioning high interest rate must understand that this is credit without mortgage. Such interest rate in U.S. Is between 12%-30%. Any Pakistani living abroad- will you invest? (There is no guarantee that you will get it back.)

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Omar

Sep 25, 2015 07:40pm

Good move. We need to continually invest in different bonds all around the world including Asia, Europe, South America and North America. These are investments for our future!

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anonymous

Sep 25, 2015 08:16pm

Those of you complaining about the rate as being too high, for example, someone saying 'Base rate in USA &Europe is less than 1%...but our gov is offering over 8%. Senseless!', don't know what they are talking. All you need to understand is the fundamental, and the very basic concept of 'supply and demand'. If the demand for these bonds was expected to be very high then obviously the rate would not be so high, would it? So what does that tell you? That tells you that the demand at half the rate, for example, would be non existent! The rate is raised to a point where it becomes attractive enough for the supply to meet the demand. Hope that makes sense.

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rahul - india

Sep 25, 2015 08:22pm

People commenting here on the high rate of interest must understand that Pakistan issues bonds that fall in 'junk' status and deep into junk status (B-). You are a risky investment and hence have to pay high rates of interest

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Asit Ghosh, Mumbai

Sep 25, 2015 08:35pm

Selling bonds at 8.25% interest to retire another set of bonds sold in 2006 tells a very pathetic story. It means the money collected in 2006 hasn't earned enough dividents to pay fot itself, instead it has mired the economy in such a tangle that now an absurdly high token rate has to offered to pay back. The finance minster also has the gall to say that the issue got over subscribed!

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Ch. K. A. Nye

Sep 25, 2015 08:36pm

@anonymous... Basically what you're saying is that the interest rate needs to be high to generate demand by investors... Just shows how much trust an investor has in this great nation ours...

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KM3

Sep 25, 2015 08:49pm

New Debt to pay previous debts. Good going. Keep it up. And man, we Pakistanis love to be fooled all the times.

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Simran

Sep 25, 2015 09:30pm

This is not good and shows investors don't have faith in Pakistan economy.

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Shaam سے

Sep 25, 2015 09:32pm

Above 8% it's atrocious... how will they pay up at the end of the tenure. If the bonds of 2006 are due in 2016 and they think the new bonds will cover up the maturity of the previous bond, they are fools. With the current prevailing economics, they will end up just like many ponzi schemes around the world, or simply get trapped into a vicious never ending cycle, borrow-pay, pay-borrow... Bad Decision... Instead secure the trust and invite investments like Modi is doing! All the best with the Euro Bonds, sincerely hope, the GOP makes it a success!

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Simran

Sep 25, 2015 09:35pm

@Omar -Do you understand difference between loan and investment?

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Sep 25, 2015 10:32pm

Parliament and the Judiciary are Silent, while the Sharif government continues on expedited steak to borrow money on exorbitant rates of interest. Sharifs will be long gone when it is time to pay back. Can someone stop them please?

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timetostopthis

Sep 25, 2015 10:44pm

The country has been forced to pay much higher rate as its leaders have refused to reform the energy sector. if they had committed to reform the energy sector, they could have borrowed from the world bank at 2%, but they refused. So while other countries are borrowing at 2% and 3%, Pakistan has to borrow at 8.25%.

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Khalid

Sep 25, 2015 11:11pm

Till yesterday there was news that 1 billion will be raised. Seems nobody subscribed so now it's half 500 M.

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Nilesh

Sep 25, 2015 11:52pm

Dear neighbours, its not good news, for following reason: 1) its will be used to pay for 2006 bonds, means its not liquid money whcih can be used or invested. 2) rate of interest is 8+ .... Really bad.... 3) there can be better alternative for raising money he just extended the loan. 4) consider dropping value of inr.... It means you will have to payback more much more than 8% interest. 5) why old investment of 2006 did not generate return to payback for itself? Is that issue identified and fixed? Who was accountable for this goofup? 6) Eid Mubarak take care of these flawed schemes. Make sure our kids are debt free. It's time for you to raise money and give to PM fund so that kids are free from future loans.... Consider donating something to PM fund....

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Iqbal Malik

Sep 26, 2015 12:00am

8.5% interest rate is a disaster for the future of our country. These thugs know that they will not be in power till that time so lets get the money now and who care about the future of the country. This type of bonds earned 1.75- 2.25% interest.

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M.Saeed

Sep 26, 2015 12:56am

With this high rate of interest on bonds, how is the Government going to survive the cruelties of the uncertain future.

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Faizan

Sep 26, 2015 01:18am

@Feroz 8.25% on US$ not Euro, right? The bond is dollar denominated, not euro.

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Iqbal Malik

Sep 26, 2015 01:53am

@Nilesh These people are not here to make better future for our generations. Actually they are here to loot the remaining wealth of this nation. They have to complete their loot in 5 years after that they will the turn to PPP.

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Jamal

Sep 26, 2015 03:38am

@rahul - india junky bonds mean high risk. So high risk means that the country could go default in future in case growth slows down or become negative. The country must be having some supper forecasting models that might be predicting that country will grow supper fast. Who kmows

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A Shah

Sep 26, 2015 04:34am

We should forget this and focus on Kashmir only.

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A Z I

Sep 26, 2015 07:07am

Why Govt did not pay back the money borrowed back in 2006 from its foreign exchange reserves? Pakistan commercial banks have foreign currency accountsand Govt should have approached these banks to borrow money from them on commercial rates. People cannot afford loans at such exorbitant rates but this could be necessary for Mr. Dar so that he could boast of foreign currency reserve figures. Disgusting it is. How are we going to pay back these loans?

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asad LATEEF

Sep 26, 2015 08:50am

@Ray Ray . you need money today, they are expecting near 50 billion dollars from franchising their 75% of mineral resources.

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Disgusted

Sep 26, 2015 10:20am

I wonder who were the banks for this issue and advised Pakistan to come to market at this time? Seriously wrong advice but they got their hefty fees, you add that in and probably the all in cost of borrowing is higher than the coupon. What was the need/urgency to borrow when markets are in a turmoil? Yesterday's news was Pakistan to borrow a billion but probably the market interest was low hence higher coupon to save face. Whose face? This is outright criminals? Now this will be added to the reserves and invested at a .25%. Would like to know who are the investors with whom this was placed? Munshee giri at its best.

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Muhammad Chaudhry

Sep 26, 2015 11:16am

@Azhar did the Government default on its as well as previous rulers commitment? The answer is no. We should appreciate the better situation.

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Omar Khayyam

Sep 26, 2015 11:22am

At 8.5% in Euros, the rate in Pakistani rupees could be anywhere from 14% to 17% once the premium to creditors for devaluation is added on to the basic Euro rate. Why not float a 15% bond for people in Pakistan and use that money to pay off the existing Euro bond? The article did not state what rate of interest was being paid on the existing bond. However, if GDP growth is around 3 or 4%, and Foreign Debt grows faster, the Debt/GDP ratio gets out of the safe zone and a future unnecessary crisis is on hold just waiting to happen.

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Abubakar

Sep 26, 2015 01:02pm

Incumbent Government is pledging our future by issuing Euro Bonds at exerubtant rate of 8.25% (predicting us as junk state carrying Junk Bond status) when interest is prevailing in narrow bond range and global economy is sluggish with deflationary impact. Ministry of Finance and State Bank Governor are subservient to incompitent government and financing them through road shows in west, extremly pathetic and irresponsibility , only enjoying perks & not bothering economic implications. Politicians are also busy in power politics and involve in election politics This issuance of bond should be part of national discourse and new economic theories should be discussed for invlusive growth , creation of employment opportunities , regional integration , peace and security of people

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Najib Rasak

Sep 26, 2015 03:33pm

Smart move by current politicians to let the grandchildren pay back money borrowed and spent by the grandparents.

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Krishnan

Sep 26, 2015 05:15pm

I fail to understand one thing. There are so many comments but not even one has questioned as to what happened to the amount collected in 2006. Any bond or loan that is taken is supposed to be invested in some income generating scheme which will generate income and will be payed back as and when it is due.

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imran

Sep 26, 2015 05:15pm

they are making things worse for the government to come after 10 years

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imran

Sep 26, 2015 05:22pm

the situation warrant attention of Gen RS to ensure transparency...this is really very very costly business...Pakistan is paying heavy price.

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Qasim

Sep 26, 2015 05:31pm

Hi! Everyone Can anyone tell from where can we buy Pakistan Eurobond? Has anyone purchased such bonds earlier

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Obi kanobi

Sep 26, 2015 05:41pm

Just to be clear a Eurobond hs nothing to do with Euros and is not a European bond. It is a bond that is nominated in a particular currency (dollars in this case) and sold to investors in national capital markets other than the country which issued the denominating currency. These make up 80% of the bond market for various reasons including: - the Eurodollar bond can be brought to the market more quickly since they are not offered to US investors who must comply with strict SES requirements. - they are typically bearer bonds that provide anonymity to the owner.

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sohail

Sep 26, 2015 05:55pm

This finance minister who is extremely incompetent hasn't missed a single opportunity to destroy our economy. He made Pakistan a begged with no limits. His main objective is to safeguard sharifs looted money and he himself built an empire in Dubai.

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Jamal

Sep 26, 2015 06:54pm

When you raise money by selling bonds in the international market then what is the collateral. Collateral will be your country and if not then embarrassment. Pakistan belongs to people and not the ruling class. Ask where and how that money will be spend.

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ahmad

Sep 26, 2015 07:12pm

@Nptigo Utterly wrong. Where did you learn your economics dear. We are talking about sovereign bond here not a private home loan to a very risky lender. Our debt to GDP ratio is still low compared to GREECE . Even last sale of bonds by Nawaz Govt around one year ago was at very high interest rate compared to Sri Lank who issued dollar bonds at the same time with lower rate.

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Jamal

Sep 26, 2015 07:13pm

Wake up Pakistan especially Media. Ask where they are spending internationally raised money. What is the return on that money. Ask where 1.5 billion dollar was spend which they got from Suidi Arabia. I humbly request to Imran Khan please come forward and ask these questions to our finance minister and Nawaz government. Do not wait till it is late..

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ahmad

Sep 26, 2015 07:14pm

@Irshad Khan it depends on debt to GDP ratio

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ahmad

Sep 26, 2015 07:20pm

@Nptigo Yes, many overseas will invest. Subscription was twice as the news says. But corrupt people have already bought these bonds themselves.

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ahmad

Sep 26, 2015 07:34pm

@Disgusted right on money

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PHILOSOPHER (from Japan)

Sep 26, 2015 10:16pm

Why? and for what purposes?

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Shahid Akbar, New York

Sep 26, 2015 10:19pm

A coupon rate of 8.25% pretty high but it is due to political, default, and sovereign risks. International rating agencies such as Moody's and Standard and Poor's ratings on Pakistan are not helpful to get a lower rate.

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Jamal

Sep 26, 2015 10:23pm

@Jamal I think there is no collateral attached to junk bonds. It is the buyer who takes the risk. And in case of default it is the buyer who loose money. But then who will buy these risky bonds. But risk depends where the bond revenues will be spend. Some one told me that people are will to pay even above 30% of interest on micro loans. See the the difference 8.5% and 30%. Media has watch who is the beneficiary people or the elite.

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Sep 27, 2015 05:17am

@Omar It is not investment but increasing the debt .

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Gul

Sep 27, 2015 09:47am

@Abu Hamza You are absolute Right. These are non-sense. They are offering in Rupees (rates) to fool the masses; and people are non-sense as well. Very very expensive non-sense!!!!!

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Obi kanobi

Sep 27, 2015 11:53am

@Qasim if the offer is fully subscribed through a lead manager then it is too late to enter the primay market. You have to wait until they are resold in the secondary over-the-counter (OTC) market, then find an agent that deals in Eurobonds in capital markets in London, Zurich, Amsderdam etc. This is mostly a wholesale market for institutional investors and you need to understand the risks involved before investing. Eurobonds are not for amateurs

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Larkanavi

Sep 27, 2015 02:53pm

Where is the opposition? Are they napping? Offering 8.5% interest rate in current environment is unforgivable. It is tantamount to a criminal act. Wake up Ik. This is a substantive issue.

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Sep 27, 2015 04:01pm

Somehow this smells like our politicians money coming back in Euro bonds ? Why trust our own depreciating currency when we have option of Euro and Dollar. So its easy chain ... Make money thru corruption, send abroad thru agents and bring back in Dollar and Euros at high interest and we will pay them !!

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ahmad

Sep 27, 2015 07:28pm

@HN Bravo!

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Wiseman

Sep 27, 2015 08:06pm

Taking loan to repay loan? What kind of economics is this? 8%? No wonder issue was over subscribed. If people get 8 times return on their investment they will invest. But the bigger question is - is such a desperate attempt to raise money the only solution? Why not educate the public what is better for Pakistan rather than enter gamble of such magnitude?

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Analyst

Sep 27, 2015 08:54pm

In the UK the base rate is 0.50 so why over 8% here? isn't that too high?

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harith

Sep 27, 2015 09:12pm

Shame on FM to say that issue was oversubscribed. Obviously when you pay arte of above 8%, some high risk taking investors would come. I am sure that if he had offered 10%, the issue would have been oversubscribed by many more multiples. The issue is the very high rate here. FM should advise how would he service a 8.25% coupon with a GDP at 5% avg?

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Zeeshan

Sep 28, 2015 01:13am

This minister and this government is the production of rigging so don't expect fairness, honesty and any loyalty with the country from them. Let them destroy the economy until 2018 and then try to bring new leadership.

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Azhar

Sep 28, 2015 02:03am

Pakistan leadership creating very difficult future for the country and for the future governments. High intrest rates bad impact is not a brainer. What our state Bank governor is thinking. This rate is very high. If country is in war, or attacked by a plague or needed to fund the education. It looked fishy, some already set doubts. Pakistan planning department must realize that we are at this stage due to corruption, poor focus on education.

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SUNIL

Sep 28, 2015 05:15am

Those who do not empower their people through education and jobs force them to live on alms

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JUSTICE

Sep 28, 2015 08:35am

Government should not use taxpayer's money, instead Government should force Nawaz Sharif and Asif Zardi to bring stolen money stashed in Swiss Banks and UK. This way Pakistan don't have to issue new EU bonds.

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