Pakistan Dual Trancher
On Wednesday, Nov 29th, Pakistan (B3/B) successfully priced a US$2.5bn dual tranche Sukuk bond offering comprised of:
- US$1bn 5.625% 5yr Sukuk Notes maturing on 12/5/2022 priced at par
- US$1.5bn 6.875% 10yr Notes maturing on 12/5/2027 priced at par
The transaction was announced during Hong Kong hours on Wednesday and came on the back of road show efforts beginning November 22nd.
With federal cabinet approval for borrowing of up to US$3bn, early indications were for a US$1.5bn total print split equally between the two tranches. Given the strong investor demand however, with 2.4x over subscription and books over 6bn (rumored to be skewed to the 10yr) Pakistan eventually took out a total size of US$2.5bn.
The 144a / Reg S offering were marketed with initial pricing thoughts of 6% area on the 5yr Sukuk and low 7% area on the 10yr conventional Eurobond tranche. Guidance came in at 5.75%-5.875% and 7% area on the 5yr and 10-year tranches, respectively with further price tightening prior to launch. Final price was set at 5.625% on the 5yr Sukuk and 6.875% on the 10yr Eurobond offering.
Citigroup (B&D), Deutsche Bank, Dubai Islamic Bank, ICBC, Noor Bank and Standard Chartered Bank were joint book runners to the issue.
Despite recent political challenges, yields on the Pakistan 2024 (2014 issue, 7 year residual maturity) bonds dipped twice to levels below 5.8% in June and September 2017.
Compared to 2014 and 2015 pricing on the 10 year bonds (US$1 billion and 500 million) pricing on recent issue has improved significantly over earlier levels. Spread over 10 year US Treasury notes has declined to 449 basis points for the November 2017 issuance compared to 553 basis points in 2015. Spreads for the 5 year issue also improved to 352 basis points over comparable 5 year US Treasury notes.
One wonders what pricing would have been like in the absence of current political turmoil and if future issues are likely to see additional improvements in spreads if and when Pakistan taps international bond markets again. Needless to say, investors are likely to see immediate capital gains on the bonds as yields settle down post issue to July and September levels.