ISLAMABAD, April 20: Pakistan has swapped its recent $500 million Eurobond from fixed to floating rates, which marks the country's first-ever government deal in the international derivatives market.

Officials said the government plans to conduct more forward deals in the future, ranging from cross-currency swaps to yield-curve swaps, as part of its debt management strategy.

The government said on Tuesday that Standard Chartered Bank had executed the interest rate swap, which is likely to save the country $40m to $70m. Adnan Gilani, a newly-appointed director of Pakistan's debt management office, said Islamabad's future swap deals will help augment the country's yield curve.

"We have a portfolio of about $36 billion of international debt and liabilities that needs active management through derivative deals," he said. After the launch of the $500 million Eurobond in February this year, Pakistan's first in the last four years, the government said it wanted to take advantage of low global interest rates by swapping fixed rates for floating rates.

"In the best-case scenario, Pakistan is likely to save $70 million over the next five years," assuming the London interbank offered rate stays at its current low level of 1.2pc, said Ashfaque H. Khan, an economic adviser to Pakistan's Ministry of Finance. Any increase in Libor would reduce the savings on the swap deal, he said.

The current Libor rate is likely to yield savings of 235 basis points over the Eurobond's fixed 6.75pc coupon rate, Khan said. The Eurobond due 2009 was sold at 370 basis points over comparable US Treasury's. "We also want to involve the local banks to develop hedging capabilities and get involved in such deals," said Mr Gilani. -Dow Jones Newswires

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