Moody's assigns definitive B3 rating to Pakistan's global bond offering
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ISLAMABAD: Moody's Investors Service has assigned a definitive rating of B3 to Pakistan's global bond offering.
"The outlook is stable" said a Moody statement issued on Friday.
Moody's definitive ratings for these debt obligations confirm the provisional ratings assigned on September 18, 2015.
The Moody statement said that Pakistan's B3 issuer rating reflects moderate economic strength with a supply-constrained economy that has been resistant to structural change, Moody's reported.
Although the scale of the economy is relatively large, globally, Pakistan's per-capita income level is relatively very low.
Implementation of the China-Pakistan Economic Corridor (CPEC) will over time, bolster growth through investment in transportation and power generation infrastructure, the statement said.
However, the government has gained significant traction on reforms under the IMF (International Monetary Fund) programme, key goals of which include deficit reduction, resolving constraints in the energy sector, and the privatisation of several state-owned enterprises.
Government's debt roll over risk is also reduced by sizeable recourse to domestic bank lending and, to some degree, by a debt structure which consists of long-tenor credits from multilateral and official bilateral creditors, the Moody's statement said.
The statement further added that the challenging operating environment, susceptibility to economic risks and political shocks, coupled with a high concentration to the sovereign, links the health of the banking system very closely to that of the government.
Upward pressures stem from support from multilateral and bilateral lenders, which bolster an improving foreign reserve position and ongoing reform progress. Deeply entrenched weaknesses in the power sector also acts as a bottleneck to growth.
While Pakistan's government financing is mainly from domestic sources and system-wide external debt is declining as a percent to GDP (Gross Domestic Product), the level of external public debt poses a moderate degree of credit risk.
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Comments (31) Closed
Oct 03, 2015 05:18pm
Primary criterion for rating agencies is a country's ability to repay its loans, not how its paid.
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Oct 03, 2015 05:24pm
Moody wait,we would welcome your ratings after CPEC becomes operational.Just wait & see.
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Oct 03, 2015 05:53pm
This is what it means to have a b3 rating.. Maybe the person who wrote the article would have research the b3 rating
"One of the lower ratings that a ratings agency assigns to a security or insurance carrier. This rating signifies a higher risk of default and greater risk to investors or policyholders. Entities that receive this rating are often experiencing financial instability or hold inadequate cash reserves."
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Oct 03, 2015 06:18pm
B3 rating is supposed to be an embarrassment. Other countries with this rating include Liberia, Honduras and tonga. Pakistan still has miles to go especially when compared to India.
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Oct 03, 2015 06:38pm
Nawaz Sharif Zindabad
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Oct 03, 2015 06:48pm
@Caught@Glance CPEC is just another toll road. It's implementation is questionable.
Structural reforms and peaceful foreign policy are Need of the hour.
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Oct 03, 2015 07:08pm
Pakistan has a lot of work to do if it wants to improve its debt ratings and borrow money at lower rates.
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Oct 03, 2015 08:08pm
All credit goes to PM NAWAZ SHARIF and his team for bringing back on track the country economy which was predicted by the same MOODI for default in 2013.
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Oct 03, 2015 08:17pm
Can someone explain the risk involved with this B3 ratings. I believe in the western world its not that good. You have to high interest on your borrowings.
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Oct 03, 2015 09:08pm
@ali
B3 signifies 'highly speculative' - whereby probability of being repaid is weak, and anyone buying it should be concerned that they may suffer a loss.
This does not mean that the issuer will default - but may struggle to pay interest and principal back in full and on time.
However, the key thing to look for is the outlook. Which in this case is stable. A few years ago, Pakistan was drifting towards C rating - so at least it is moving in the right direction.
Investors always look at ratings before investing - as official ratings will have a direct impact on the capital you have to set aside for making the loan.
With a stable B3 rating, international investors can start thinking about putting money into Pakistan - which otherwise their mandates would not have allowed.
So from that perspective it good. The holy grail is to get to Baa3 - which is considered investment grade (i.e: non-speculative). That is still 6 notches higher.
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Oct 03, 2015 09:13pm
In Pakistan you guys think that everything will get better after CPEC becomes operational..really. One project and it will solve all your problems...guys be serious.
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Oct 03, 2015 09:35pm
"B3" is not a bad rating. Had it been "Aaa" also, only patriotic expatriates would have invested. In fact rating will not change its attractiveness. Bond will be successful.
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Oct 03, 2015 10:01pm
Do one really requires Moody to confirm that investment in Pak or Pak Bonds is risky?
R.S. Menon
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Oct 03, 2015 10:53pm
The Moody statement said that Pakistan's B3 issuer rating reflects moderate economic strength with a supply-constrained economy that has been resistant to structural change. So, whose been resistant to structural and infrastructure development, one and only Imran Khan !!!.. Still with great pressure Nawaz pulled off the country to new era. from Negative to positive, way to go Nawaz!!!
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Oct 03, 2015 10:59pm
"The outlook is stable" said a Moody statement issued on Friday. Nice Going Nawaz, nice going !!! from -tive to positive, it took a lot of efforts, but hats off to you, whole 2014 with Dharna,abusing, baseless allegations, you did not loos you path to development. Pakistan is now reaping benefits of your sober leadership.For Raheel appointment even your opposition praise your decision as the most historic decision ever made, well done Nawaz !!! Your decisions have in fact brought stability in Pakistan. while Imran Khan is still asking for negotiations with taliban terrorist you have not tolerated with them and it ahs almost ended terrorist elements in Pakistan. For development to mass projects, people are again talking in favour of PML N. Nice going.
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Oct 03, 2015 11:04pm
Imagine just imagine if KPK had to issue any development bond ? who will be interested after zero performance, corruption and considered as the most neglected province. Just saying!!!. Geaet going Nawaz, Pakistan wa sunder nagative rating for years and you pulled off within 1.5 years and maintained it. After 2.5 years we are sure to see major developments. Pakistan is fast becoming a world reality and with its own voice. How can be more thanful to have Nawaz as our sober prime minister.
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Oct 03, 2015 11:12pm
Judged as being speculative and a high credit risk.
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Oct 03, 2015 11:19pm
@Caught@Glance Don't be naive..CPEC also need stable Pakistan and single project cannot make a country economically strong. PAK need atleast 10-15 such projects.
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Oct 04, 2015 02:06am
@Khan Suggest you do some research into what a B3 rating is before singing praises of the government. B3 is a very poor rating indeed !!!
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Oct 04, 2015 02:13am
@Tanweer Khan
I do not know of any reputable banks or institutions would place funds in B3 rated instruments.
That is why Mr Dar offered such exhiorbitant rates (which even the troubled sovereigns are not paying) to 'attract' investors.
It would be good to see who these so called 'international' investors are who invested in these and the previously issued high interest bearing bonds.
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Oct 04, 2015 02:16am
@TANDi why will the rating not affect the attractiveness?
The rating (which in this case indicates that this investment is speculative) is part of the dereminants of the return expected by the investors.
The higher the risk, the higher the return expected by the investors.
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Oct 04, 2015 02:47am
@Tanweer Khan Thanks. I learned something new today?
Haven't the faintest idea what ratings are?
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Oct 04, 2015 02:53am
B3 is not prime and is considered "speculative and high credit risk" according to Moody's Investor Service.
Check Wikipedia.
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Oct 04, 2015 05:09am
B3 is one of the worst ratings. the article puts it as one of the better ratings, Shame
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Oct 04, 2015 05:15am
Focus your attention to improve your economy and not on India.
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Oct 04, 2015 05:16am
@Caught@Glance
Then wait for 30 years.
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Oct 04, 2015 07:30am
CPEC is 46b in 13 year even if successful Do you think it will be able to change the fortune Indian railway alone is getting an investment of 120b in next 5years
Plus you will be paying for CPEC at an extravagant rate
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Oct 04, 2015 10:18am
@Maratha It's not "one project". It's multiple large-scale projects worth $46Bn spanning the next 15 years. Also when you implement projects of this magnitude, the benefits are not restricted to the project itself and you invariably have a knock-on effect on other segments of the economy like local vendors, SMEs, service providers etc. i.e. a significant multiplier effect.
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Oct 04, 2015 12:36pm
@salman ahmed
I trade Emerging Market bonds and work for a large German bank - although my remit is Eastern Europe only.
B3 ratings issues are obviously lower rated, and with that higher yielding. They are very popular with hedge funds, asset managers, pension funds and so on. Given the benign rate environment in USA, UK and Europe more and more of these types of international investors are looking at Asian sovereign bonds.
The rate is not set by Mr Dar. It is based on what investors want to receive from these securities vis a vis other B3 sovereign issuers.
If you have access to a Bloomberg terminal, you can get all this information yourself.
As far your question on reputable banks is concerned, this bond was marketed on behalf of Pakistan by Citigroup, Standard Chartered and Deutsche Bank. So at least those 3 banks are definitely prepared to put money in these bonds for market-making and liquidity reasons.
Whether those 3 are reputable in your book is of course another issue.
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Oct 04, 2015 03:14pm
@salman ahmed Lots of reputable investors invest in lower rated bonds because they're managing large portfolios and must balance risk and return. By investing in only high grade paper they will produce sub-optimal returns which is why all of them have a certain percentage allocated to low grade but higher risk instruments. Pool of investors consists of large pension funds from OECD as well as banks, insurance cos and asset mgmt firms.
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Oct 04, 2015 07:26pm
B3 are junk bond . Very high risk which requires high return. India's rating is investment grade rating, but barely so.
Both countries have vast potential and are being skewered by their politicians who look first into filling their personal or party coffers.
I think both would do well with some Chinese justice. Death sentence for siphoning off public funds.
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