I might know a guy who worked on this deal if the list of lead manager's is correct. I wish I had had the pleasure myself.
Can anyone post some data on Bonds worldwide if they have ? Just to educate us a bit.
7 % to me seems way too excessive.
After all they are not talking about Defence savings certificates and other local bonds that the Government can just print more Rupee to pay off the high interest rate offered in Pakistan. This is return in forex..
Worldwide interest rates are at a real low.
I wouldn't be able to share any data with you, but it seems to me that 7% is actually very reasonable (or even expensive) as it's inline with the
Pakistani Sovereign 10Y. All else equal as a general rule (not always true but...) a company, PSE, or financial institution's bonds will always be higher yielding than their respective sovereign, due to higher credit risk. Actually, I'm thinking this WAPDA bond is too low yielding. If it were not for it being a public entity (therefore near sovereign exposure), and also a green bond (therefore investors pay a small green premium), the rate I'd expect to be higher than the estimate.
As for the comment on printing rupees, this may be true for PKR bonds. But this one in particular was a Eurobond (USD), so the credit risk is still there. Sovereign risk is only low in their own currency denominated debt. To explain why the rate is as high as it is compared to the rest of the world where rates are low as you said, you should consider a few different factors that are at play in those low interest rate economies:
Firstly, that high yield is also there to compensate credit risk in a foreign currency issue by a Pakistani entity. If it were a PKR denominated bond, investors would need to swap the currency into their desired local currency, and cross currency basis for PKR I imagine is very expensive given how volatile it is. Secondly, the low rates are there in the West by design, they are the result of extreme monetary policy of zero percent interest rates, and QE (bond purchases). Those bond purchases essentially bid up the price of eligible sovereign and corporate bonds, as well as shrinking the available pool of securities to buy, while flooding markets with cash, this is like a chain reaction of higher prices and lower yields. Also, in Europe for example, banks and certain institutions can only hold certain levels of risky assets in their portfolios, they must have HQLAs mixed in (usually near cash, or sovereign debt), so that further bids up price and yields respectively. None of this applies to Pakistani bonds, or other EM debt.
As for Pakistan's own debt, why the high interest rate? A simple explanation is that we are not seen a trustworthy or stable sovereign, nor is the economy considered stable or robust. In simple relative value terms, just look up Pakistan's credit rating (B3 / B- / B-), compare Pakistan's yield curve to curves of similar rates sovereigns like Ukraine or Tunisia. Our curve is actually lower than theirs, so the rate being as high as it is, isn't surprising at all. But it is nice to see a Pakistani green bond, it's an upcoming market, and there's a lot of space for it in our context.
I hope this clears up any confusion, or at least adds some context.
