Pakistan looks to issue US dollar-denominated Sukuk bonds

In a bid to generate funds, Pakistan would soon issue US dollar-denominated Sukuk bonds as it looks to shore up its foreign exchange reserves in the face of a rising import bill.

Bloomberg reported that Pakistan has mandated Credit Suisse, Deutsche Bank, Dubai Islamic Bank and Standard Chartered Bank as joint lead managers (JLM) and joint bookrunners (JBM) to organise a series of investor calls on Tuesday, January 18, 2022.

“A U.S. dollar-denominated benchmark 7-year Sukuk offering under the Trust Certificate Issuance Programme of The Pakistan Global Sukuk Programme Co, will follow, subject to market conditions,” said the report, citing sources familiar to the matter.

Moody's Investors Service assigns ratings

Credit ratings agency Moody's Investors Service assigned a B3-backed senior unsecured rating to the proposed US dollar-denominated trust certificates (Sukuk) issuance by Pakistan.

"The assigned rating mirrors the Government of Pakistan's current issuer rating," stated Moody's in its note.

Moody's added that downward pressure on the rating would stem from renewed deterioration in Pakistan's external position, including through a significant widening of the current account deficit and erosion of foreign exchange reserve buffers, which would threaten the government's external repayment capacity and heighten liquidity risks.

"A continued rise in the government's debt burden, without prospects for stabilisation over the medium term, would also put downward pressure on the rating."

Meanwhile, Mohammed Sohail, CEO of brokerage firm Topline Securities, said response on the bond issue will be a "key determinant of foreign investor view on Pakistan".

The development comes as Pakistan looks to convince the International Monetary Fund (IMF) to revive the $6-billion Extended Fund Facility ahead of a meeting of the Washington-based lender on the country's sixth review.

Completion of the review would make available SDR 750 million (about $1,059 million), bringing total disbursements under the EFF to about $3,027 million.

The IMF programme, many believe, is crucial for the economy facing a widening current account deficit on account of a rising import bill. The pressure on the external front has taken a toll on the local currency, which has lost over 13% of its value since its recent high in May last year.

As per the latest figures, Pakistan’s trade deficit has widened by 106.4% during the first half (July-December) of the current fiscal year 2021-22 and reached $25.478 billion compared to $12.344 billion during the same period of 2020-21, revealed the Pakistan Bureau of Statistics (PBS) data.

Last week, the National Assembly passed the Finance (Supplementary) Bill, 2021 as well as the State Bank of Pakistan (Amendment) Bill, 2021, which were a part of prior actions given by the IMF to move ahead on the EFF facility.