Pakistan pitches $1bln Islamic bond to global investors

KARACHI: Pakistan has mandated four banks to arrange investor meetings ahead of the planned issuance of a seven-year tenor US dollar-denominated Sukuk, with analysts expecting an increased appetite for the country’s debt from global investors seeking higher returns.

The move follows a B3 rating given by Moody’s to the Sukuk offering and the International Monetary Fund (IMF) announcing January 28 meeting with an agenda to hold Pakistan’s sixth review for $6 billion Extended Fund Facility.

Credit Suisse, Deutsche Bank, Dubai Islamic Bank and Standard Chartered Bank were mandated by the government as joint lead managers and joint bookrunners to organise investor calls for the sale of Sukuk on Tuesday, Bloomberg reported, citing a source familiar with the matter.

The bond has been offered under the Trust Certificate Issuance Programme of the Pakistan Global Sukuk Programme Company Limited, it said.

A benchmark issuance would follow, subject to market conditions, it added. Expected benchmark issuance was $1 billion.

Bankers said the lead arrangers would start communications with investors either by holding two-way investor calls or roadshows, which were a combination of one-on-one meetings and group sessions, to know about the demand and the pricing being expected by them for the issuance.

Roadshows help meet investors face to face and to present and market a new transaction. These could be held in two to three countries, they said.

“If the government gets orders from investors it will move ahead quickly and execute the transaction. So, it will all depend on how investors from various regions and the markets behave in the separate meetings and roadshows. The pricing would be better if the IMF loan programme is resumed,” said a senior investment banker.

“So far, there is no idea which option the government is going to follow to start offering bond either directly or through the book-building process. The book-building process refers to the collection of buy orders from investors.”

The PTI government is tapping the international capital market for the second time to generate funding from alternative sources to reduce growing balance of payments pressures fuelled by higher imports and foreign debt repayments.

Pakistan is going to issue international Sukuk after a gap of four years, but raised $3.5 billion in Eurobonds in 2021.

The issuance is part of the plan, where the government had budgeted to raise $3.5 billion through Eurobond/Sukuk issuance this fiscal year.

“Depending upon the size and duration, there will be demand for Pakistan Sukuk, considering its higher yield. Though the IMF deal is yet not approved, investors can take a bet that it is a matter of time that the IMF programme will resume,” said Mohammed Sohail, CEO at Topline Securities.

The pricing was going to be higher as compared to 2017 issue due to change in economic situation and higher funding needs, according to Fahad Rauf, the head of research at Ismail Iqbal Securities.

“The yields of Pakistan's recently issued Eurobonds have also increased sharply, mainly due to rising global inflation and expectations for the tightening of the monetary policy,” Rauf added.

To a query, how international investors looked at the geopolitical risks associated with Afghanistan's political situation when buying Pakistani debt, the analyst said, “Pakistan's CDS (credit default swap) spread has not changed much since the last Eurobond issuance, indicating that the Afghan situation has not increased the country’s debt risk as such.”