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May 29, 2020

Pakistan likely to shelve foreign bonds plan till yearend


May 29, 2020

KARACHI: Pakistan is likely to delay a plan to sell sovereign bonds in international capital markets till this yearend due to weak investor appetite amid the pandemic and availability of low-cost foreign inflows from multilateral and bilateral creditors for the country, people familiar with the matter said on Thursday.

Analysts said the flotation of Eurobonds, including Chinese Yuan-denominated bond would be postponed. The government, in the budget 2019/20, unveiled a plan to raise $3 billion by issuing sovereign bonds this fiscal year.

The process of issuing a planned $1 billion Panda bond was underway and the government was prepared to float that deal in the mainland capital market somewhere in the first quarter of 2020.

The consortium of four banks, Habib Bank Limited, Citibank, CITIC and China Development Bank was working on the deal as financial adviser and lead manager.

“Countries around the world are focused on managing the fallout of the COVID-19 pandemic on their own economies and on reviving domestic economic activities,” said Muhammad Aurangzeb, president and chief executive officer of HBL. “International bond issuance is essentially on hold as a result of this change in priorities in international markets.”

Aurangzeb further said the pandemic related logistics (credit rating agency meetings, / road shows/ legal discussions etc.) are further delaying the bond issuance. “We expect movement on this front only once the global economic climate settles down a little bit. We expect this to pick up in Q4 2020 again.”

A source close to the Chinese bond deal said the government and the State Bank of Pakistan were advised before the pandemic not to issue the Panda bonds, “as it no longer made sense now that we have enough RMB in our reserves and secondly, Panda bonds under the current format of tapping the secondary market in China would be too expensive”.

“It simply would not be prudent for Pakistan from an economic management point of view,” said the source. “Eurobonds, when the market gets back to normal conditions, would be the appropriate step to undertake first.”

The government isn’t in the rush to raise funds via international debt market as it has secured $1.4 billion in emergency financing from the International Monetary Fund, which would help the country meet the balance of payments needs emerging from coronavirus shock.

Moreover, the Asian Development would provide Pakistan $305 million loan for social protection for the poor and vulnerable and for public health emergency preparedness. The World Bank also pledged a $240 million package to help Pakistan take effective and timely action to respond the Covid-19 outbreak. These disbursements are expected to start receiving by next months.

The IMF hinted at resuming discussions with Pakistan to complete the second review of the country’s extended fund facility program that was deferred last month due to the outbreak of the coronavirus.

The Asian Infrastructure Investment Bank would provide budgetary support worth $500 million to Pakistan to mitigate the significant negative economic and social impacts caused by coronavirus crisis.

G-20 countries committed to defer a payment of around $1.8 billion for Pakistan for one year.

About impacts of rating downgrades on access to funding from the international markets, Salman Shah, the former caretaker finance minister said a window of opportunity to launch debt sales is very dim or limited.

“Financial markets conditions have turned so bad,” said Shah. “Foreign issuers are in the wait-and-see mood and are unwilling to come in the bond market now due to coronavirus recession and lockdowns.”