Pakistan Plans First Dollar Bond Since 2007 as Offers Jump

Pakistan plans to raise as much as $1 billion in its first bond issue abroad since 2007, adding to a surge in emerging-market offerings as borrowing costs fall.

The government is looking to carry out the transaction by the end of the fiscal year in June, according to a Finance Ministry official who asked not to be identified because he isn’t authorized to speak publicly. Yields on the country’s 2017 bonds fell to a six-year low of 7.56 percent today.

The offering would help shore up foreign reserves as Prime Minister Nawaz Sharif’s four-month-old government tackles chronic power blackouts and seeks peace with Taliban insurgents to restore investor confidence and revive the economy. Sharif met last night with U.S. officials including Treasury Secretary Jacob J. Lew and Commerce Secretary Penny Pritzker to discuss Pakistan’s energy sector and opportunities for trade and investment, according to a Treasury Department statement.

Pakistan joins issuers from Honduras to Kenya planning debt sales as benchmark 10-year U.S. bond yields fall to a three-month low amid speculation the Federal Reserve will delay its plans to scale back monetary stimulus. The Dominican Republic and Romania sold notes earlier this week while Brazil plans to sell dollar bonds due 2025 as soon as today. Emerging-market sovereign borrowing costs have tumbled 17 basis points, or 0.17 percentage point, in the past week to 5.53 percent.

“There will be investor appetite for a modest-sized issue” from Pakistan, said Edwin Gutierrez, a London-based fund manager who helps oversee $10 billion of emerging-market debt at Aberdeen Asset Management Plc, said in an e-mail. “In this market, they can get it done.”

IMF Support

The yield premium investors demand to own Pakistan’s dollar notes over U.S. Treasuries narrowed 163 basis points this year to 635 basis points, compared with the weighted average of 315 basis points for developing nations, according to JPMorgan Chase & Co.’s indexes.

While Moody’s Investors Service and Standard & Poor’s assign junk status to Pakistan’s debt, Sharif can count on support from the International Monetary Fund and Saudi Arabia to avoid a default, Gutierrez said. The IMF agreed last month to lend Pakistan $6.6 billion to help it avoid defaulting on foreign loans.

The Finance Ministry official said Sharif’s economic overhaul as well as increased capital inflows from international lenders after the IMF loan will help make the bonds attractive to global investors.

Pakistan Reserves

Pakistan asked banks to submit proposals by Nov. 22 for the sale of the bonds, according to a notice on the Finance Ministry’s website.

The country’s foreign-exchange reserves fell to $5.2 billion in August, the lowest since October 2008, according to IMF data compiled by Bloomberg. Currency reserves held by the State Bank of Pakistan fell to $4.1 billion on Oct. 11 from a year earlier, enough to cover only 1.5 months of imports, the bank’s data show.

Honduras plans to sell $250 million of bonds in December, a Finance Ministry official, who asked not to be identified, said yesterday. Kenya, East Africa’s largest economy, invited JPMorgan to arrange the sale of a debut Eurobond that it plans to issue by January, Treasury Secretary Henry Rotich said today.

Brazil is seeking to sell $1.5 billion of notes due in 2025 as soon as today. Proceeds will be used to buy back existing notes maturing from 2017 to 2030, according to an e-mailed statement from the Treasury.

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