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EDITORIAL: The government of Pakistan is issuing its fourth sukuk in the international debt market. The timing of this issue coincides with the IMF’s (International Monetary Fund’s) 6th review meeting by its board of directors on 28th January 2021. Pakistani authorities were likely waiting for the update on IMF’s calendar before issuing the bond.

With a growing current account deficit and ballooning debt repayments, the external financing needs for the second half of the fiscal year are enormous, to say the least. Pakistan had recently issued Eurobonds worth $3.5 billion - $2.5 billion in April 2021 and $1 billion in October 2021. These bonds were issued for 5-year, 10-year and 30-year tenors or maturity and the rates varied from 6 percent to 8.88 percent.

The sukuk issued in December 2017 fetched $1 billion for 5 years at 5.63 percent. Now a sukuk issue is in the works.

The issue would be for 7 years, a first for Pakistan. The questions about the yield of the bond and the quantum of the issue have no answers.

There are, however, indications based on existing bond yields in the secondary market. One bond, which will be maturing in 2027, is trading around 7.5 percent.

Seeing this and considering the new issuance premium, the 7-year bond yield could be around 8 percent. There may however be some discount for the sukuk issue and the government may be able to fetch around 7.75 percent.

On the question of size, there are two parameters to check. One is what the government has budgeted, and the other is whether assets are available for the sukuk issuance. The government in this budget has allocated a sum of $3.5 billion to raise from the international capital market. Already, $1 billion Eurobonds were issued in October. The remaining are of $2.5 billion. It, therefore, increasingly appears that the government will confine itself to around $1 billion.

Market rates have moved up internationally due to rising global inflation. In the case of Pakistan, however external account vulnerabilities are growing with rising oil prices and increased tensions in the Middle Eastern region.

The secondary market yields have moved up recently and this phenomenon is coinciding with the timing of issuance. Pakistan cannot delay its issuance due to repayment considerations.

The issuance is already delayed due to the delay in IMF board’s nod. Seeing all these factors, we can safely deduce that $1 billion will be raised in this issue at around 7.75 percent. With open tap, expecting another $1.5 billion issuance before June end this year would be in order.

Copyright Business Recorder, 2022

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