Govt to raise up to $1bn through eurobond

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KARACHI: The government is planning to raise $500 million to $1 billion by floating eurobond in the international debt market, sources in the financial sector said on Saturday.

The government has consulted international banks to assess the likely market response. However, preparations for launching the eurobond are at an initial stage, the sources said.

Recently, Iraq launched its first independent bond worth $1bn, which was oversubscribed by seven times, reflecting demand for bonds in the debt market.

Pakistan has a good track record of borrowing from the international market as it has never defaulted.

However, the country had a bad experience in September 2015 when it issued a 10-year international bond of $500m. Its rate of return was considerably high at 8.25pc.

The government faced criticism over the launch of an expensive bond. But the Ministry of Finance said the economic downturn in China and uncertainty created by the Federal Reserve’s decision at the time forced Pakistan to restrict borrowing to just $500m.

Now the latest Iraqi experience indicates that even the war-torn country can raise money at 6.75pc rate of return through the bond that will mature in 2023.

With a deepening political crisis, Pakistan’s financial position is getting weak, especially on the external front. Record trade and current account deficits, falling remittances, declining manpower exports and a steep slide in foreign exchange reserves are posing a challenge to the government.

Experts in the financial sector said the bond launch should have already taken place since the country’s ability to hold foreign exchange reserves equal to three months of imports is eroding fast.

The State Bank of Pakistan’s reserves amounted to $14.31bn on Aug 11, slightly higher than the value of three months of imports. Reserves of the central bank have been falling since October. They are down by $4.6bn in about nine months.

If the reserves slide further, the country will find it difficult to get loans from international lenders at low interest rates.

In October 2016, Pakistan issued five-year sukuk of $1bn, which attracted $2.4bn investment. The yield on the paper was of 5.5pc.

The country borrowed $4.36bn loans from foreign commercial banks in 2016-17. The Economic Affairs Division reported that the country provisionally received $10.55bn foreign assistance from multilateral and bilateral donors.

Published in Dawn, August 20th, 2017

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