KARACHI, Aug 10: Pakistan expects to issue its second eurobond on better terms than the country’s recent forays into international capital markets, a senior government official said on Wednesday.

Pakistan plans to finalize details of the issue in October and will sell eurobonds, denominated in either dollars or euros, by the end of the calendar year or at the beginning of 2006.

Ashfaq Hasan Khan, head of the finance ministry’s Debt Management Office, said the government expected the new bonds to be sold at much tighter spreads than two previous international issues — a 2004 eurobond and an Islamic bond early this year.

“We expect spreads will compress in the new issue as risk perception of Pakistan has improved on the back of robust economic growth of over eight per cent,” Mr Khan told Reuters. “We know we can excite the international market as appetite for bonds is high.”

Mr Khan said the government would finalize the terms, timing and size of the issue in October.

Pakistan, which had been under economic sanctions after conducting nuclear tests in mid-1998, returned to the international debt market in February 2004 with a $500-million five-year eurobond issue. The

bond was priced at 370 basis points over five-year US Treasuries.

In January, the country sold a $600-million Islamic bond at 220 basis points over six-month LIBOR (London Inter-bank Offered Rate).

Pakistani officials have said the country does not need the cash but wants to develop a benchmark for international markets.

“There is no need for funds as our reserves are at an all-time high but we are doing this to maintain links with investors globally,” Mr Khan said.

Pakistan’s foreign exchange reserves are hovering around a life-high of more than $12.5 billion and the country is expecting economic growth of between six and eight per cent in the fiscal year ending June 30.

Analysts said the reserve position carried weight in negotiating better terms from commercial banks. They expect the country would be able to borrow at between 180 basis points to 200 basis points over six-month LIBOR, as a number of Middle Eastern investors, flush with petro-dollars, are eying Pakistan as a low risk investment.

“January and February will be the right time for the issue because fund managers in the Middle East decide their future investment plans at that time,” said Arshad Arif, an analyst at KASB Securities.

He said the credit rating agencies were also likely to upgrade Pakistan’s rating by December given the improving fiscal situation, monetary policy and external account.—Reuters