Pakistan Issues $2b in Global Bond Markets

[Windjammer]

Pakistan returned to the international bond markets on Wednesday after a seven-year hiatus, joining a number of other countries around the world raising cash as yield-hungry investors look to put money to work.

Pakistan sold $2 billion of debt, with almost two-thirds going to U.S.-based money managers, two days after Sri Lanka sold a bond for a second time this year. Bankers say Papua New Guinea, Bangladesh and Bhutan are also expected to come to the market this year, hoping to lock in low yields.

The demand reflects both improving economies in these countries and investors’ appetite to venture further afield for high returns. The appeal of emerging-market debt has risen as central banks in U.S., Europe and Japan pledge to maintain stimulus measures to keep growth humming, a move that pushes up asset prices across the globe.

“There’s been a reversal in the sentiment towards emerging markets over the last two weeks. Everyone loved to hate them, and now, all of sudden everyone is increasing their positions,” said Rajeev DeMello, head of Asia fixed income at Schroders Investment Management in Singapore, which has $435.4 billion of assets under management.

Pakistan Re-Enters Global Bond Markets With $2b Issue - Frontier Markets News - Emerging & Growth Markets - WSJ

 

[SBD-3]

Pakistan returned to the international bond markets on Wednesday after a seven-year hiatus, joining a number of other countries around the world raising cash as yield-hungry investors look to put money to work.

Pakistan sold $2 billion of debt, with almost two-thirds going to U.S.-based money managers, two days after Sri Lanka sold a bond for a second time this year. Bankers say Papua New Guinea, Bangladesh and Bhutan are also expected to come to the market this year, hoping to lock in low yields.

The demand reflects both improving economies in these countries and investors’ appetite to venture further afield for high returns. The appeal of emerging-market debt has risen as central banks in U.S., Europe and Japan pledge to maintain stimulus measures to keep growth humming, a move that pushes up asset prices across the globe.

“There’s been a reversal in the sentiment towards emerging markets over the last two weeks. Everyone loved to hate them, and now, all of sudden everyone is increasing their positions,” said Rajeev DeMello, head of Asia fixed income at Schroders Investment Management in Singapore, which has $435.4 billion of assets under management.

Pakistan Re-Enters Global Bond Markets With $2b Issue - Frontier Markets News - Emerging & Growth Markets - WSJ

Originally the bonds issue was expected to be around 600 Millions only. However, the issue was oversubscribed by 10 times with bids around 6.2 billion USD prompting government to issue 2 Billion instead of 600 Million

 

[Tameem]

Originally the bonds issue was expected to be around 600 Millions only. However, the issue was oversubscribed by 10 times with bids around 6.2 billion USD prompting government to issue 2 Billion instead of 600 Million

Wow

 

[farhan_9909]

Will someone please tell me how it will affect our foriegn reserves?

will they increase it or what is this to begin with?

 

[VCheng]

Will someone please tell me how it will affect our foriegn reserves?

will they increase it or what is this to begin with?

Government issued bonds are just another way of raising money, by promising to pay it back with a certain per cent guaranteed interest at maturity, that is, another form of debt.

 

[SBD-3]

Government issued bonds are just another way of raising money, by promising to pay it back with a certain per cent guaranteed interest at maturity, that is, another form of debt.

Well you wouldn't need to explain that, would you? its finance 100 (not even 101).

 

[SBD-3]

Will someone please tell me how it will affect our foriegn reserves?

will they increase it or what is this to begin with?

Initially increase them as the funding will come in and then periodic outflows of servicing and final outflow of maturities 5 and 10 years.,

 

[Devil Soul]

Dar hails investor confidence as Pakistan's Eurobonds subscribed three times over
By Shahbaz Rana
Published: April 9, 2014

ISLAMABAD: In the largest ever single transaction, Pakistan has been able to raise $2 billion from international debt markets through the issuance of five- and ten-year dollar-denominated Eurobonds, taking a giant step towards meeting the International Monetary Fund (IMF) condition of increasing its gross official reserves to $9 billion.

It was the highest amount that Pakistan has ever raised in a single attempt, which according to analysts shows the increasing confidence of international investors in government policies.

The bonds were highly over-subscribed, receiving offers of $5.2 billion, but only offers totalling $2 billion were accepted, Ministry of Finance spokesperson Rana Assad Amin told The Express Tribune.

Amin added that against the initial expectations of $500 million, the investor response was overwhelmingly strong and the order-books were oversubscribed across the two tranches, consisting of over 400 orders from high quality investors.

Finance Minister Ishaq Dar speaking at the US Institute of Peace during his visit to Washington, commented on the Eurobond that the demonstration of massive response to Pakistani sovereign paper is unprecedented.

“The multilateral donors and international markets have reposed tremendous confidence in Pakistan’s economic future.”

The government has raised $1 billion for five years and another $1 billion for ten years, according to details issued by the Finance Ministry. However, the government will be paying a high cost for venturing into international debt market after a gap of seven years.

The $1 billion raised for the five-year tenure have a fixed rate of 7.25%, 5.58 % over and above the benchmark five-year US Treasury rate. The $1 billion were generated through ten-year bonds at a fixed rate of 8.25%, which is 5.56% above the corresponding 10-year US Treasury benchmark rate.

In 2007, the Musharraf government had issued ten-year bonds at 6.75% interest rate, which was 3.25% above the US treasury rates at that time.

Against the high premium that Islamabad chose to pay, Sri Lanka on Tuesday sold $500 million of five-year bonds at 5.1%. Pakistan has a junk credit rating of Caa-1 by Moody’s Investors Service, which increased cost of borrowings.

Under the $6.8 billion bailout package, the IMF has asked Pakistan to increase its gross official reserves to $9.4 billion by end of June this year. As of end March, the gross official reserves stood at $5.17 billion, requiring the government to raise another $4.3 billion in three months. After the successful issuance of Eurobonds, the government is betting on the World Bank and the Asian Development Bank to meet the remaining shortfall.

According to the Ministry of Finance, the five-year bonds were distributed across all major geographic regions with 59% going to US investors, 19% to UK investors, 10% to investors in mainland Europe, 10% to investors in Asia and 2% to investors elsewhere. Fund managers took 84% of the five year issue, banks took 8%, hedge funds took 7%, and insurance companies and pension funds got 1%.

The Finance Ministry said that the ten-year bonds were distributed 61% to US investors, 21% to UK investors, 12% to investors in mainland Europe, 5% to investors in Asia and the Middle East and 1% to investors in other regions. Fund managers took 86% of the ten-year issue, hedge funds took 9%, banks took 4%, and insurance companies and pension funds took 1%.

Two Pakistani teams had held the road shows. A team headed by the Finance Minister Ishaq Dar visited Dubai, London and New York and another team headed by the Finance Secretary Dr Waqar Masood visited Singapore, Hong Kong, Los Angeles, San Francisco and Boston.

Disclaimer

The bonds have not been and will not be registered under the United States Securities Act of 1933, or with any securities regulatory authority of any state or other jurisdiction of the United States. They may not be offered or sold in the United States unless they are registered under the Securities Act, or are offered and sold pursuant to an exemption from the registration requirements of the Securities Act.

The investment instruments are being offered and sold outside the United States, and inside the United States only to qualified institutional buyer within section 144a of the Securities Act.

The securities have not been approved or disapproved by the US Securities and Exchange Commission, any state securities commission or any other regulatory authority in the United States.

 

[madooxno9]

And these bonds fall under which category ? Rating ?

 

[VCheng]

Initially increase them as the funding will come in and then periodic outflows of servicing and final outflow of maturities 5 and 10 years.,

Yes, in simple terms: Take on more debt and pay it back with interest. The "increase" in reserves is therefore fake and transitory.

 

[dawn_news]

Yes, in simple terms: Take on more debt and pay it back with interest. The "increase" in reserves is therefore fake and transitory.

Pakistan badly need money to finance big projects, this will not help?

 

[VCheng]

Pakistan badly need money to finance big projects, this will not help?

Yes, if the money is put to good use, it will temporarily ease the financial crunch, but at very high interest, which is make it more difficult to pay off.

 

[Windjammer]

Yes, if the money is put to good use, it will temporarily ease the financial crunch, but at very high interest, which is make it more difficult to pay off.

Well if the Pakistani establishment do their home work utilise the funds into prosperous projects, that should generate enough funds to make this a healthy move.

 

[VCheng]

Well if the Pakistani establishment do their home work utilise the funds into prosperous projects, that should generate enough funds to make this a healthy move.

Correct. The bonds can be useful if they are put to good use.

 

[ashok321]

Sri Lanka on Tuesday sold $500 million of five-year bonds at 5.1%. Pakistan has a junk credit rating of Caa-1 by Moody’s Investors Service, which increased cost of borrowings.

Lol

Pakistan badly need money to finance big projects, this will not help?

Wrong Pakistan has to show that it has 9 billion USD at the end of this June to IMF.
Thats why Pakistan is raising money through bonds, which, if not paid, the creditors can take away Pakistani assets through litigation.

7.25 + 8.25 percent interest rate is very high for a country like Pakistan.
India is able to borrow at below 4% fro ADB/IMF/WB without constraints.
Pakistan's FOREX situation is precarious to speak of.
Nobody wants to lend to Pakistan any further - Hence the Bonds.