Govt invites financial advisers for euro bonds, sukuk

ISLAMABAD: The government has started a process to hire financial a0dvisers for the issuance of dollar-denominated Eurobond and sukuk at the prospect of investors’ appetite sharpened by IMF-backed reforms in Pakistan.

The finance ministry invited financial advisers and planned to set up a medium-term note (MTN) program for issuance of US dollars denominated Eurobond and sukuk. MTN usually matures in five to 10 years. Investors, however, can choose from differing maturities, ranging from nine months to 30 years, under the program. A request for proposals' document said the finance division planned to engage two consortia, each consisting of five financial institutions, for issuance of Eurobond and sukuk under the program. “The selected consortia are expected to guide, advise, manage, coordinate and execute the whole range of activities associated with the program.”

The ministry didn’t disclose size of the proposed issuance, but it might raise an estimated $2 billion. When the country last time entered into the foreign debt market in 2017, it raised $1 billion in five-year sukuk and $1.5 billion in 10-year Eurobond on lower yields. Profit rate for sukuk was 5.625 percent and for the Eurobond it was 6.875 percent.

The government shelved a plan to issue dollar-denominated bonds last year as higher yields were to be offered. Analysts said the time is ripe to tap the overseas debt market as loan program of the International Monetary Fund (IMF) restored confidence of foreign investors.

The country entered into a $6 billion IMF loan program in July to avert balance of payment crisis. It also took funds from bilateral sources, including China, Saudi Arab and UAE. The IMF estimated $38 billion in foreign inflows over the three years period of the loan program.

In July-August, current account deficit sharply narrowed 54.6 percent year-on-year to $1.292 billion as exchange rate adjustment and regulatory steps led to reduction in import bills during the period, the central bank’s data showed. The current account deficit represented 2.8 percent of gross domestic product in July-August, down from 5.5 percent of GDP in the same period a year earlier. While the inflows helped the country support depleting foreign exchange reserves, it would still need $19 billion to meet its external financing requirements during the current fiscal year of 2019/20.

The IMF is optimistic about Pakistan’s bonds floats to get good response with foreign investors betting on the current direction of the country’s economy aided by the Fund.

An analyst is, however, skeptic over the response of foreign investors to even low yields to be offered by Pakistan. “(Ratings agency) Moody’s termed Pakistan’s as junk bond. Since it is high risk bond that investors would gravitate towards the float is to be seen,” the analyst told The News earlier this month.