KARACHI: In its first venture into foreign capital markets since the outbreak of major political turbulence in the country, the government managed to attract highest- ever bids in an auction of Pakistani debt.
Bids worth over $8 billion were received for the two bonds that the government floated in New York on Wednesday: a five-year sukuk and a 10-year eurobond. The government raised $1bn through the sukuk at 5.625 per cent and $1.5bn via the euro bond at 6.875pc.
Besides the high participation, yields were also lower compared to Pakistan’s last foray into international bond markets.
Last year, for instance, the government raised $1bn through a five-year sukuk at 410 basis points above the five-year US treasury bill, whereas that spread was 365bps this time around. Likewise, the yield on the 10-year bond was down by 1.6pc from the last 10-year paper floated by Pakistan in international markets.
Book-building began at 6pc. Citibank, Deutsche Bank, Dubai Islamic Bank, ICBC, Noor Bank and Standard Chartered Bank opened the books.
Investors shrug off political turbulence as yields fall amid record bids
The government delegation overseeing the conduct of the auction was led by Special Assistant to the Prime Minister on Economic Affairs Miftah Ismail, State Bank of Pakistan Governor Tariq Bajwa and Finance Secretary Shahid Mehmood.
The markets appeared to have shrugged off the turbulence in the country as the single largest auction of government debt came to a close late on Wednesday night, Pakistan time.
The declining foreign exchange reserves have made raising this new debt a big priority, said Nasim Beg, CEO of Arif Habib Consultancy.
“We need to shore up our reserves because we are facing an imminent devaluation otherwise,” he told Dawn as the auction drew to a close. “Devaluation will hike the price of energy, further straining exports.”
But shoring up the reserves through borrowing only buys time, he adds. “The important thing is how we use that time to put in place the right policies.”
Earlier this month, the federal cabinet allowed the government to borrow up to $3bn from international debt markets by floating three sovereign bonds to sustain depleting foreign exchange reserves.
In September 2015, Pakistan had a bad experience when it raised $500 million through a 10-year bond at 8.25pc. That floatation came under sustained criticism for the high spread.
The government then said the economic downturn in China and uncertainty created by the US Federal Reserve’s decision to end the era of easy monetary policy at the time forced Pakistan to restrict borrowing to just $500m.
Pakistan’s reserves depleted by over $4bn in one year to $19.8bn due to the widening of the current account deficit, which surged 122pc to $5.013bn in the first four months of 2017-18 compared to $2.259bn a year ago. The government has received sustained criticism for taking on excessive amounts of debt to compensate for this trend.
Published in Dawn, November 30th, 2017