HBL divestment eases external weakness; credit positive: Moody’s

KARACHI: The government’s recent selling of its stake in profitable HBL bank that fetched over one billion dollar is credit positive as it has reduced the country’s external vulnerabilities, ratings agency Moody’s said on Thursday.
Pakistan last week raised a record $1.02 billion by selling its entire stake — 41.5 percent in HBL, the country’s largest lender by assets.
“The stake sale, primarily to foreign investors, is credit positive because it will boost Pakistan’s international reserves,” Moody’s Investors Service said. “The cushion from reserves, coupled with dwindling external debt repayments, will further diminish the sovereign’s likelihood of default.”
The HBL offering was the government’s fourth minority stake sale. Last year, the government raised $387 million from the sale of shares in United Bank Ltd, $153 million from Pakistan Petroleum Limited and $150 million from Allied Bank Limited. The government delayed an offering for the Oil and Gas Development Company Limited because of unfavorable market conditions.
Moody’s said the HBL stake sale will significantly buffer Pakistan’s external position.
“Gross foreign reserves with the State Bank of Pakistan have climbed to $11.6 billion as of early April from $3.2 billion in January 2014. The steady increase in foreign reserves, although largely derived from higher external borrowing, has markedly improved Pakistan’s score on Moody’s External Vulnerability Indicator (EVI), which measures the adequacy of reserves relative to maturing debt in the next year,” it added.
“For the fiscal year ending June 2016, we estimate that the EVI will fall to 74.9 percent from a peak of 122.5 percent in fiscal 2014.”
The rating agency said signaling confidence in its ability to sustain the pace of reserve accretion, the government agreed to raise by $1 billion the target for net international reserves to $6.8 billion by late June. Net reserves were $4.5 billion at the end of March.
Moody’s said the sale will contribute to fiscal consolidation and signals the government’s continued commitment to structural reforms primarily under the framework of its program with the International Monetary Fund (IMF).
Pakistan has been broadly on track to achieve reforms prescribed under its Extended Fund Facility (EFF) with the IMF, successfully completing sixth reviews and earlier this month the fund released $500 million in the sixth loan tranche under its bailout package for the country.
Pakistan has initiated the ambitious privatization program that is one component of its $6.0 billion, three-year extended fund facility with the IMF. The PML-N government has identified 24 public-sector enterprises that it will privatize through strategic private-sector participation, 11 via primary or secondary public offerings, and three via restructuring. The government aims to offer or market at least one transaction each quarter this year.
Moody’s said although capital market transactions so far have focused on profitable corporations and have met with relatively strong demand, “the restructuring of loss-making public-sector enterprises such as Pakistan Steel Mills, Pakistan International Airlines and Pakistan Railways could prove more difficult.” “However, the government has kick-started the process by appointing financial advisors and approving a comprehensive restructuring plan,” it added.
“Privatization proceeds will help shore up non-tax income, offsetting a likely slippage in tax revenue growth and helping to shrink the fiscal deficit. A portion of the proceeds could also be utilized for debt repayments.”