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August 10, 2018

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Govt speeds up special overseas bond issuance to raise $1 billion

KARACHI: Cash-strapped government hurries to issue a planned dollar/rupee bond through the Central Directorate of National Savings (CDNS) to reduce debt payment deficits, as IMF bailout is likely to remain out of reach for the time being, government officials said on Thursday.

They said CDNS planned bond for overseas Pakistanis has reached its final stage, and after vetting from the finance ministry, it would be offered “as soon as early next month”.

The government estimates to fetch initial investment in the range of $550 million to $1,200 million per annum on the basis of one fourth of 4.5 million overseas Pakistanis living in Gulf Cooperation Council (GCC), making a minimum investment of $500 only, an official at the financial ministry said.

“It is expected that the OPSC (Overseas Pakistanis Savings Certificate) will send immense positive vibes throughout the Pakistani diaspora, and spread around the world,” he said. “The remittances will enhance from the banking channels further through this initiative.”

The CDNS has already appointed a consortium of Ernst & Young, HaidermotaBNR & Co, and Al Tamimi & Co as an advisor, through a request for the proposal process. This consortium would be responsible for structuring the proposed OPSC, analysing the taxation, and legal matters in the target markets.

National Savings has appointed United Bank Limited (UBL) as the manager/operator (who will manage the back-office of the product) after a competitive process.

Potential agents/distributors in the target markets have been identified.

The operational modalities and mechanism of the product are being put in place by UBL, Ernst & Young, and HaidermotaBNR & Co, which will eventually be approved by the State Bank of Pakistan (SBP).

The upcoming government of Pakistan Tahreek-e-Insaaf, on different forums, through its designate-finance minister Asad Umar has said they expect to raise dollars from the overseas Pakistanis to mitigate the economic situation faced by the country.

The CDNS product OPSC would be an attractive avenue for parking foreign exchange in a government-based security.

Denomination and interest rate would be decided after the launch, but it would likely be around Rs10,000 or equivalent in dollars.

Interest rate could range between five to six percent, higher than what the global banks offer to their investors; London Interbank Offered Rate has been around 2.7 percent. Interest rate on the bonds has not yet firmed up, but would be cheaper than sukuk and eurobonds.

The government last year floated bonds bearing interest rate of 6.75 percent to 7.25 percent.

Minimum lot overseas Pakistani can buy was around $1,000 or equivalent rupees, an official of the ministry of finance close to the designing of the product has informed.

The proposed tenor will be three years and five years with monthly profit.

“The product offering will make them feel that the government back home cares for them and is coming up with innovative solutions to safeguard their savings by providing both secure and lucrative investment platforms.”

The bond is proposed to be launched initially in the GCC and then subsequently in the United Kingdom and United States of America, while in the third phase, it will be rolled out across the globe, keeping in view the regulatory requirement of the market.

During the current fiscal year 2018/19, financial needs range between $8 billion and $10 billion to bridge the ballooning current account deficit. In the preceding fiscal year, the current account deficit reached an all time high of $18 billion which was around 5.8 percent of the gross domestic product.

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