On April 9, 2014, Pakistan raised $2 billion – Pakistan’s largest ever single transaction – from international debt markets by issuing 5 years and 10 years Eurobonds. Eurobonds are debt securities used to tap dollar reserves present in other countries.
Pakistan’s Eurobonds
Pakistan had previously issued 10-years Eurobonds in 2007, with a credit rating of ‘B1’ (Brandimarte), the interest paid at that time by Pakistan was 6.75% (Rana). 12-month Libor, in 2007, at the time of bond issuance, was hovering around 5.3% and 5.4%.
On April 9, 2014, Pakistan raised $2 billion by issuing 5 years and 10 years Eurobonds – $1 billion from each type of bond – which carried the interest rates of 7.75% and 8.25% respectively (Rana). Although Pakistan had a relatively poor rating of Caa1 (Pakistan | Credit Rating), Pakistan succeeded in generating significant interest in the issuance of bonds. 12-month Libor, at the time of issuance, in April 2014, was about 0.55%, which was significantly below the Libor in 2007.
In 2014’s bond issuance, Pakistan had to compensate for the high economic and political volatility of the country. The risk coefficient of Pakistan had increased since 2007, which, in turn, had, theoretically, raised the cost of investment for firms in the country; so naturally, the investment required a higher return.
Other South Asian bond issuance in 2014
Pakistan was not the only South Asian country to issue bonds in 2014; Sri Lanka and Bangladesh were also involved in similar bond issuance.
Sri Lanka on April 8, 2014 issued $500 million 5-year sovereign bonds at a yield of 5.125%. Sri Lanka was also involved in previous 5-years bond issuances: in 2007, 2009 and January 2014 which were priced to yield 8.25%, 7.40% and 6.00% respectively. (Aneez, Ranga)
Banglalink Digital Communications Limited, a subsidy of Egypt’s Global Telecom Holding, on April 28, 2014, issued 5-year $300 million bond with coupon rate 8.625 percent; Bangladesh’s first international bond. The transaction is expected to close on May 6, 2014. (Alsharif)
Distribution of Euro bond
With the interest rate provided by Pakistan and with conditions of Pakistan’s economy looking on the bright side, it did not come as a surprise that Pakistan was able to find investors from all major geographical areas of the world:
| Geographical Location | US | UK | Europe | Asia | Others |
| % of 5 years bond | 59% | 19% | 10% | 10% | 2% |
| % of 10 years bond | 61% | 21% | 12% | 5% | 1% |
(Alam)
Fund managers seized the opportunity for investment and were the major stake holders in the Eurobonds issued by Pakistan.
| Geographical Location | Fund Managers | Banks | Hedge Funds | Insurance Companies / Pension Funds |
| % of 5 years bond | 84% | 8% | 7% | 1% |
| % of 10 years bond | 86% | 9% | 4% | 1% |
Future is Bright?The successful bond issuance and the investment coming from a diverse pool of investors have visualized a prosperous future for Pakistan, with further FDI to follow suit. The increased confidence of the international investor could be assessed by the fact that the bonds were oversubscribed. Mr. Rana Assad Amin, Additional Finance Secretary at Government of Pakistan, said: “Pakistan’s bond was highly over-subscribed and received $5.2 billion offers but we decided to accept $2 billion.” (Rana)
Sayem Ali, a Karachi-based economist at Standard Chartered, said to Bloomberg “bond sale will put us back on the map; hopefully it will attract more and more investment here into Pakistan. Nobody’s really given us a second look.” (Angerer, Lyubov)
Investors are now looking forward to investing in Pakistan, for the economic condition in the country is improving, with the foreign reserves (including the private banks’ foreign reserves) projected to increase to $15 billion by the end of September, 2014. (Khan)
References
- Alam, Kazim. “Pakistan Raises $2 Billion through Eurobonds.” The Express Tribune (09 Apr. 2014).
- Alsharif, Asma. “Banglalink Digital Issues $300 Mln Bond.” Reuters. Thomson Reuters, 28 Apr. 2014.
- Aneez, Shihar, and Ranga, Sirilal. “UPDATE 1-Sri Lanka Sells 5-yr, $500 Mln Sovereign Bond at 5.125 Pct Yield.” Reuters. Thomson Reuters, 8 Apr. 2014.
- Angerer, Tanya, and Lyubov Pronina. “Pakistan Plans $2 Billion of Bonds Amid Record Asian Sales.” Bloomberg.com. Bloomberg, 08 Apr. 2014.
- Brandimarte, Walter. “UPDATE 1-Moody’s Says May Downgrade Pakistan’s Ratings.” Reuters. Thomson Reuters, 05 Nov. 2007.
- Khan, Mubarak Z. “Dar Eyes Forex Reserves at $15bn by End-Sept.” Dawn.com. N.p., 17 Apr. 2014.
- Rana, Shahbaz. “Single Attempt: Pakistan Raises $2b through Euro Bonds.” The Express Tribune. N.p., 10 Apr. 2014.
- “Pakistan | Credit Rating.” Pakistan | Credit Rating. Trading Economics, n.d. Web. 29 Apr. 2014.