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Pakistan Plans $2 Billion of Bonds Amid Record Asian Sales

Pakistan is marketing $2 billion of bonds, its first international sale since 2007, as the country seeks to bolster its reserves after a record quarter for sovereign note sales in Asia.

South Asia’s second-biggest economy is offering $1 billion of five-year notes at a yield of 7.25 percent and the same amount of 10-year securities at 8.25 percent, a person familiar with the matter said. Sri Lanka sold $500 million of five-year debt at a 5.125 percent yield yesterday after governments in Asia outside Japan raised $6.5 billion selling bonds last quarter.

Pakistan, Asia’s lowest-graded country with a Caa1 rating at Moody’s Investors Service, is seeking to increase its reserves to receive more International Monetary Fund loans. The IMF agreed to lend the nation, which is suffering from power shortages and a Taliban insurgency, about $6.8 billion in September and will approve a tranche of about $556 million conditional upon satisfactory fiscal and structural reforms.

Pakistan “has made significant strides in improving its policy making and economy under the auspices of a strong IMF program,” Alexander Moseley, a senior portfolio manager in New York at Schroders Plc, which oversees $87 billion in fixed-income assets globally, said by e-mail. Its “new issue offers good value,” he said.

Outperforming Bonds

Pakistan’s bonds have been outperforming their Asian and emerging-market peers since the beginning of 2013, led by the election of “reform-friendly” Prime Minister Nawaz Sharif and the start of a new IMF program, Standard Chartered Plc analysts led by Jaiparan Khurana in Singapore said in a note last month. The program provides some relief to the country’s balance-of-payments position, according to the note.

“Our base case is that credit metrics will stabilize from here, and have the potential to improve further if the reform program stays on track,” the analysts said.

Returns on dollar debt from Pakistan and Sri Lanka are the highest in Asia this year, HSBC Holdings Plc indexes show, gaining 19.15 percent and 6.11 percent respectively. The yield on Pakistan’s June 2017 dollar bond fell three basis points today to 6.47 percent, 134 basis points below this year’s high on Jan. 6, data compiled by Bloomberg show.

Sri Lanka

Sri Lanka’s U.S. note offering this week was its second time tapping international debt markets this year. It sold $1 billion of five-year debentures at a 6 percent yield on Jan. 6, according to data compiled by Bloomberg. The yield on the note fell six basis points to 5.05 percent today. The South Asian nation will use the money to build urban and estate complexes and fund development projects, 2014 budget documents show.

Pakistan’s “bond sale will put us back on the map,” Sayem Ali, a Karachi-based economist at Standard Chartered, said by phone today. “Hopefully it will attract more and more investment here into Pakistan. Nobody’s really given us a second look.”

Oil India Ltd. and Singapore’s Oversea-Chinese Banking Corp. were also selling dollar bonds today. Oil India, based in the state of Assam in the country’s northeast, is selling Reg S $500 million of five-year bonds and 10-year notes of the same size at spreads of 222.5 basis points and 272.5 basis points respectively, a person familiar with the matter said, asking not to be identified because the details are private.

OCBC is offering Basel III-compliant Tier 2 securities at a spread of about 245 to 250 basis points. The notes can be bought back in 5 1/2 years by OCBC, subject to approval from the Monetary Authority of Singapore.

The bonds would be the second U.S. dollar Basel III-compliant notes from a Singaporean lender after United Overseas Bank Ltd. raised $800 million selling 3.75 percent securities last month.

To contact the reporter on this story: Tanya Angerer in Singapore at tangerer@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net Stephen Kirkland, Chris Kirkham

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