Pakistan’s Dollar Bonds Rise With Stocks After Moody’s Upgrade

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Pakistan’s dollar bonds climbed the most since April and stocks advanced after Moody’s Investors Service upgraded the nation’s sovereign credit ratings for the first time since 2008.

The yield on the notes maturing in April 2024 declined eight basis points to 6.95 percent as of 2:02 p.m. in Karachi, data compiled by Bloomberg show. The Karachi Stock Exchange 100 Index of shares rose 0.1 percent in a fifth day of gains. The Pakistani rupee climbed 0.2 percent to a one-month high of 101.725 a dollar.

Moody’s raised Pakistan’s foreign currency issuer and senior unsecured bond ratings to B3 from Caa1 with a stable outlook, citing improving foreign-exchange reserves and the government’s economic overhaul under an International Monetary Fund program. The upgrade augurs well for the South Asian nation that is planning to sell $1 billion of global bonds and privatize state assets to revive its economy.

“Moody’s move shows the confidence of international investors in Pakistan,” said Adeel Ahmad Khan, Karachi-based chief executive officer of BMA Asset Management Co., which manages about $80 million in stocks and bonds. “Pakistan can now offer international bonds at cheaper rates than it did previously.”

Prime Minister Nawaz Sharif, who is aiming to meet goals under a $6.6 billion IMF loan deal, plans to increase capital-gains tax to boost revenue and lift economic growth to the highest in nine years. Standard & Poor’s raised its credit outlook on Pakistan’s debt to positive from stable this year. It rates Pakistan as B-.

Investor Optimism

Sharif’s push to build power plants, roads and rail links to spur the $232 billion economy are helping improve investor sentiment. The nation’s first global sukuk since 2005 was five times oversubscribed last year. New York-based MSCI Inc. this week said Pakistan will be included in its 2016 review of equity indexes for potential reclassification as an emerging market.

The yields on the 2024 dollar bonds has slumped 89 basis points in 2015. The rate on similar-maturity Indonesian dollar debt rose 35 basis points this year to 4.48 percent. The KSE100, Pakistan’s benchmark equity gauge, has climbed 7.8 percent in 2015, compared with a 4.1 percent retreat in the MSCI Frontier Markets Index.

Pakistan is making “significant progress” in meeting the IMF’s economic targets under the loan program, mission chief to the country Harald Finger said in May.

“With the program now at its mid-point, we consider that the government has achieved significant traction in reforms,” Moody’s analyst Anushka Shah wrote in a statement on Thursday.

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