Pakistan raised US$2.5 billion in dollar-denominated debt as it seeks to pump up foreign-exchange reserves that have slumped 25 per cent.
It issued $1.5bn of 10-year notes at 6.875 per cent after initial guidance in the low 7 per cent area and $1bn of five-year sukuk at 5.625 per cent, down from initial price talk of 6 per cent, according to a person familiar with the deal. The country was targeting a sale of as much as $3bn, the prime minister Shahid Khaqan Abbasi said this week.
The $284bn economy is struggling with political and economic turmoil. The government this week capitulated to a fundamentalist group that was seeking the resignation of the nation’s law minister, while an arrest warrant has been issued for the finance minister Ishaq Dar for failing to attend court proceedings looking into corruption charges. The nation’s foreign-exchange reserves are lower than those of smaller neighbour Bangladesh.
Dar, who is on a medical leave of absence in London, has denied any wrongdoing.
“Given financing pressures, I wouldn’t be surprised if the government prioritised size over price,” Mark Baker, a Hong Kong-based money manager at Aberdeen Standard Investments, said this week. Pakistan’s economic situation has become more challenging, with the fiscal and current-account deficits widening, he said.
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Pakistan received more than $8bn orders for the $2.5bn bond offering, the finance ministry said on Thursday. It priced the 10-year bond at a record low yield, it said
The government raised $500 million from 10-year bonds at a yield of 8.25 per cent in 2015, according to data compiled by Bloomberg. It also sold $1bn of 10-year notes in 2014 at 8.25 per cent, or 557.3 basis points over US Treasuries. While spreads on those April 2024 bonds tightened significantly last year, they widened in recent months, touching 433 basis points in November, the most since January 4.
The nation’s economy is showing signs of stress, with the current-account deficit more than doubling to $14.4bn in the year through September. Foreign-exchange reserves held with the central bank dropped by 25 per cent to $13.3bn in the year to September 30.
“Some additional premium is warranted to reflect Pakistan’s political and economic woes,” said Nicholas Yap, a credit desk analyst at Nomura International (HK) in Hong Kong. Nomura recommends that investors participate with rates of at least 6.875 per cent for the 10-year bond, and 5.7 per cent for the Sukuk. “Most of the negatives have been priced in at current levels,” Mr Yap said.
Citigroup, Standard Chartered, Deutsche Bank and Industrial & Commercial Bank of China are managing the dollar bond offering, while Citigroup, Deutsche Bank, Dubai Islamic Bank, ICBC, Noor Bank and Standard Chartered are arranging the sukuk.
S&P Global Ratings assigned a B rating, its fifth-lowest non-investment grade, to the bond.
