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EDITORIAL: Earlier this week, the government raised $1 billion from the international bond market in Euro bonds in 5-, 10- and 30-year tenors at better rates than previous issues. In March 2021, when the government went to the international capital market for debt issuance after a lull, it raised $2.5 billion in these three bond tenors. At that time, the government had appointed one-year programme advisors so it could issue new instruments or open the tap anytime between March 2021 to March 2022.

This year (FY22), government has budgeted Rs560 billion ($3.5bn) from Euro Bond/International Sukuk. In the first month, government has raised $1 billion. Expect more issuances of Euro Bond or Sukuk within one year of this programme. This is a good strategy as this gives government flexibility to play the market rather than knocking the market at the time of need. Credit goes to the debt office in Islamabad that under the then finance minister, Dr Hafeez Sheikh, was able to structure it accordingly.

Earlier this week, the government decided to open the tap of already issued bonds because it foresees better pricing as US treasury yields are expected to move north in coming weeks. The government raised $300 million at 5.875 percent in 5-year bond, $400 million at 7.125 percent in 10-year bond and $300 million at 8.450 percent in 30-year bonds. The rates are better than indicative yields of 6-6.125 percent, 7.375 percent, and 8.75 percent in the three tenors, respectively. The rates are also better than what government had received in March 21 – where it had raised $1 billion in 5-year at 6 percent, $1 billion in 10-year at 7.375 percent and $0.5 billion in 30-year at 8.875 percent.

In the recent issue (July 21), the book size was more than $3 billion; however, the government raised less than one-third. The good sign is that more interest was shown in 30-year bond where bids came in the range of $1.2-1.5 billion. This indicates two things. One; that there is a preference in the market for attractive yields and it is ready to offer higher amounts in longer tenors to get those yields. The other element is that the world sees Pakistan as a relatively more stable borrower than in recent past. In earlier issues, Pakistan used to get higher interest in 5 years and now the sentiment is reversing.

After this $1 billion intake, Pakistan’s total global capital market debt stock stands at $8.8 billion. Of this, $1 billion will mature in Oct 2021 while another $1 billion in Dec 2022. The government is likely to issue bonds of similar (or higher) amounts against maturing bonds. The government could have raised a higher amount in this issue, but the bids were lower in 5-year bond and government interest was to issue at lower rates.

The next issue of debt paper is expected in a few months and is likely to be in sukuk, as these are better priced, and the country would have a diversified mix. Had the pledge of F-9 Park in Islamabad for sukuk not become a political issue, this issue would have been sukuk instead of Eurobonds. The government is looking for more assets that can be backed against sukuk issuance.

As can be seen the government is diversifying its debt stock. Naya Pakistan Certificate (NPC) issuance for Roshan Digital Account (RDA) holders has crossed $1 billion in 10 months. In 2019, carry-trade had become attractive and over $3 billion came to Pakistan’s domestic bond market. Nonetheless, their outflow was much faster than their inflow. It is worthwhile for Pakistan to tap all possible markets and avenues to reduce reliance on bilateral or multilateral creditors, as these are susceptible to influence with political repercussions.

Copyright Business Recorder, 2021


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