Eurobond euphoria ripples across financial sector
KARACHI: Oversubscribed Eurobonds created sensation in the financial sector raising hopes for a quick recovery of the economy and possible beginning of foreign investment in the country.
Pakistan initially wanted to raise $500 million through Eurobonds, but the offering of over 7.2 per cent return attracted unexpectedly very high amount of investment of up to $5 billion. The government has reportedly raised $2bn.
“The transaction was highly significant for Pakistan as it successfully re-established its profile in front of the global fixed income investor base. This is a huge success for Pakistan at the most opportune time given the ratings it received from Moody’s and S&P,” said a senior banker of one of the largest banks.
Experts in the financial sector, bankers and analysts noted with enthusiasm that Pakistan quickly made inroads to the international financial market and got the response much bigger than their expectations.
“This is the highest amount ($2bn) Pakistan government has raised through dollar bonds in one attempt,” said Mohammad Sohail, CEO of Topline Securities.
According to available information, the government has raised $1bn in five-year bonds at a fixed rate of 7.25pc — 558 basis points (bps) above benchmark five-year US Treasury — and $1bn in 10-year bonds at a fixed rate of 8.25pc — 556bps above benchmark 10-year US Treasury.
“Pakistan’s return to the global bond market will once again put the country on the radar of global investors whose preference for frontier markets is rising,” said Mr Sohail. “This deal will also help Pakistan get better response in the upcoming telecom licence sale and for the privatisation deals, besides further supporting the local currency.”
Experts see multiple positive impact of Eurobond launching, particularly while the government is struggling to improve the country’s image tarnished by the terrorism and poor law and order situation.
Bankers said the issuance of Eurobonds would help improve balance of payments and, more importantly, the image of Pakistan. They said the bond issue would go a long way in restoring investor confidence.
During the last six years the foreign investments drastically fell and only a few sectors like power and telecom could attract several hundred million dollars. Another factor that shattered the confidence on local currency was on the exchange rate. The local currency depreciated by 9pc during six months, but the government succeeded to bring it back to normal restoring confidence over the economic policies.
“Revival of foreign investors’ interest in Pakistan has culminated in $2bn bond,” said Nauman Khan, analyst at Shajar Capital. “Materialisation of flows can potentially accelerate the government’s economic recovery drive by positively impacting other macroeconomic variables.”