Pakistan mulls raising $1bln through Eurobond tap

ISLAMABAD: Pakistan is mulling to place an additional one billion dollars to its dollar-denominated 10-year Eurobond the country sold in November last year in addition to raise another $1.5 billion through short-term loans to cushion its debt financing requirement of $10 billion till June-end, finance ministry’s officials said on Tuesday.

“Islamabad wants to get $1 to $1.5 billion of short-term loans from Chinese banks and another $1 billion from tapping of Eurobond if interest rate is further lowered in weeks and months ahead,” a ministry’s official told The News. Under a bond tap, an existing transaction is reopened for subscription, using the same documentation as before.

In November 2017, Pakistan raised $1.5 billion from 10-year Eurobond against 6.875 percent.

The officials said previously the plan of tapping Eurobond was scrapped because of higher rates of US treasury that pushed yields on global debts in the range of 50 to 70 basis points.

“The tapping of Eurobond has again become an option because the treasury rates returned on lower side,” a finance ministry’s official said. “If yield on Eurobond launched in 2017 is down further then Islamabad will consider going ahead with tapping of Eurobond that can help in generating $500 million to $1 billion.”

Analysts said government could avail the option of tapping debt securities by resorting to financial advisers who could persuade investors to park more funds into the issued debt instruments.

“Indeed, this is an opportune time as there is a surplus liquidity in the world market and foreign investors are devoid of lucrative avenues amid low interest rate regime,” a senior analyst, who was close to debt management in the past, said. “Yet, I doubt since the country’s macroeconomic situation is not good and risk is high they may demand high yields.”

External financing requirement has become a major issue because of suspension of budgetary support from traditional partners, including the World Bank and Asian Development Bank (ADB) owing to rapidly depleting foreign currency reserves. Alone the later two lenders could stop budgetary support in the range of $700 to $800 million during the fiscal year.

Gross financing requirement rose to $24 billion from $17 billion. In the first eight months (July-February), the financial requirement amounted to $14 billion and of which Islamabad managed inflows of around $11 billion so the foreign currency reserves faced a shortage of over three billion dollars. Currently, foreign currency reserves started depleting at a rapid pace as they nosedived almost $900 million in the past three to four weeks.

A finance ministry’s official said Islamabad will go for commercial borrowings in the range of $1 to $1.5 billion from Chinese banks in the current month. Government raised $1.777 billion as short-term commercial loans from different banks in the first seven months (July-January) period against an envisaged estimate of one billion dollar for the whole fiscal year of 2017/18.

The finance ministry’s data showed that china has now become the largest bilateral creditor among all the countries, as Beijing provided loan of $608.71 million to Pakistan in the July-January period. Pakistan estimated to get $1.582 billion in loan from China in FY2018. China disbursed $69.4 million in loan in January.

Among the multilateral creditors, Islamic Development Bank and ADB were the biggest creditors in July-January, as they provided $790 million and $498 million, respectively during the period. In January alone, ADB disbursed $42.33 million. The government envisaged a total loan of $1.221 billion from ADB during FY2018. The World Bank disbursed $97.41 million in loans in the seven-month period. The government was eyeing $975 million from the bank in FY2018.

In July-January, Asian Infrastructure Investment Bank disbursed $15.76 million, Canada $0.16 million, EU $5.99 million, France $9.9 million, Germany $15.93 million, International Fund for Agricultural Development $9.7 million, Japan $71.52 million, Multi Donor Trust Fund $27.95 million, Saudi Arabia $22.5 million, Turkey five million dollars and UK $134 million (as grants).