Monday , December 11 2017

Pakistan all set to generate $3b Euro, Sukuk bonds

Islamabad: Pakistan is all set to launch US dollar denominated Sukuk and Eurobond simultaneously at New York on Wednesday (today) in order to generate $3 billion for avoiding depletion of foreign currency reserves. Islamabad: Pakistan is all set to launch US dollar denominated Sukuk and Eurobond simultaneously at New York on Wednesday (today) in order to generate $3 billion for avoiding depletion of foreign currency reserves.

“We are holding meetings with investors and are going to complete our transaction in accordance with set schedule of November 29, 2017,” Special Assistant to PM on Economic Affairs Division (EAD) Mifta Ismail, who is also leading Pakistan’s delegations at road-shows held prior to launching of bonds at different selected destinations of the world, told The News from New York on telephone on Tuesday.
He said that he could not disclose exact size of the deal but assured that the deal would be made only at good price. “We are sticking to original schedule for finalising transactions on Nov 29,” he added.

The federal cabinet had already accorded an approval for the simultaneous issuance of Eurobond and Sukuk this month. The country last borrowed $1 billion in the global Sukuk market at 5.5 percent in October 2016. The country also floated a 10 year Eurobond of $500 million at 8.25 percent in 2015.

The size of the bonds would depend on “availability of money at good price” but government hoped to raise up to $3 billion from both the issues. The government had arranged road shows at Dubai, London, Boston and New York this week.

The government appointed a consortium of Standard Chartered Bank, Industrial and Commercial Bank of China, Citibank, Deutsche Bank, Dubai Islamic Bank and Noor Bank as lead managers for conducting Sukuk transactions. It delegated Noor Bank with a responsibility to manage Sukuk bond in the Middle East. Names of Standard Chartered Bank, Industrial and Commercial Bank of China, Citibank and Deutsche Bank have also finalised for the Eurobond issue. US finance service firm Standard and Poor’s (S&P) posed trust on the country’s repayment ability as well as its essential elements to underpin issuance of Islamic bond, backed by assets.
“Our opinion is based on the underlying assets, consisting of a highway with all construction, superstructures, flyovers, and interchanges made on the date of the agreement,” S&P said in a statement. “We therefore equalise our rating on the programme with our foreign currency issuer credit rating on Pakistan.”

Pakistan’s foreign currency reserves stood at $19.7 billion in totality with SBP’s held reserves standing at $13.5 billion and reserves held by commercial bank mounting to $6.169 billion on November 17, 2017.

Alone in first four months, the reserves nosedived by $2.7 billion so the government would only bridge financing gap of $3 billion what they had already lost during the current fiscal year.

The planned bond issuance will give some respite to the alarming balance of payment situation due to widening current account deficit. The current account deficit swelled to $12.439 billion, equivalent to 4 percent of GDP in FY2017, much above 1.7 percent in FY2016. SBP projected current account deficit at 4 to 5 percent of GDP during the current fiscal year.

Former Economic Adviser to Finance Ministry Dr Ashfaque H Khan when contacted said that the country’s total financing requirement would be estimated at $26 to $26.5 billion instead of $17 billion as calculated by the World Bank. According to his estimates, the current account deficit could peak to $18 billion and debt servicing requirement would be standing at $8-$8.5 billion so total financing requirement could touch to $26 billion. However, the traditional foreign inflows would be hovering around $12 billion so remaining $16 billion would remain big challenge for the country’s economy, Dr Ashfaque added.

However, Finance Ministry claimed in a statement Provisional Gross Public debt increased by approximately Rs652 billion during first quarter of 2017-18 as against Rs1 trillion reported in various media reports.

Domestic debt recorded an increase of Rs853 billion during first two months of current fiscal year while it settled at Rs520 billion during first quarter of current fiscal year. The temporary increase in domestic debt during first two months of current fiscal year was due to timing mismatch between revenue and expenditures and on account of cash buffers built to comfortably meet the bullet maturities. Similarly, external public debt recorded a provisional increase of approximately Rs132 billion which was predominantly driven by translational losses on account of appreciation of international currencies against US dollar and depreciation of Pak rupee against US dollar. Therefore, incremental mobilization from external sources was almost negligible during first quarter of current fiscal year.

Details of fiscal operations of the federal government as well as the debt statistics for Q1 of CFY show strong fiscal performance and prudent expenditure manageme

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