$1 bn to foreign exchange reserves … :k:
Pakistan Issues $1 Billion of Bonds
First Such Issue in Nearly a Decade, in Bid to Boost the country’s economy,
By QASIM NAUMAN
Nov. 27, 2014 1:42 p.m. ET0 COMMENTS
ISLAMABAD—Pakistan raised $1 billion through an Islamic bond issue on Wednesday, its first such issue in nearly a decade, in a bid to boost the country’s economy, finance ministry officials said.
The government initially planned to raise $500 million from the issue, but the bond was oversubscribed, with requests totaling $2.3 billion, the finance ministry said. Offers of $1 billion were accepted for a five-year maturity at a so-called profit rate, which is similar to a yield, of 6.75%.
The issue was part of Prime Minister Nawaz Sharif ’s ambitious plans to boost Pakistan’s economy, which include divestments and privatization of as many as 31 state-owned enterprises.
Finance Minister Ishaq Dar called the bond issue “a reflection of [the] international investor community’s [confidence] in the leadership of Prime Minister Nawaz Sharif and his economic policies.”
Officials on Thursday said the issue had added significance because of the abandoned sale of a part of the government’s stakein the country’s largest oil and gas business, due to poor investor response. That sale had been expected to raise $800 million, but investors tendered bids for only 52% of the shares on offer.
An Islamic bond, or Sukuk, doesn’t rely on interest, which is forbidden in Islam. Instead, the bonds are linked to assets and profits paid to investors based on revenue generated by the assets, or based on the investor’s part-ownership of the asset, depending on the bond’s arrangement.
“This [bond] issue has been very successful; It’s a big boost and a statement of trust from investors,” a senior finance ministry official said, requesting anonymity because he wasn’t authorized to speak to the media. “Our assessments proved correct: that investors were hungry for an Islamic bond.”
In a statement issued after the issue, Pakistan’s finance ministry said the profit rate of the $1 billion Islamic bond “compares favorably with the average weighted cost of comparable domestic debt of about 11%” and will result in annual savings worth 5 billion Pakistani rupees, or nearly $50 million, in debt servicing.
The ministry said the $1 billion proceeds from the bond issue will immediately go to the country’s central bank, which will help boost foreign exchange reserves. Pakistan had liquid foreign exchange reserves of $13.2 billion as of November 21, according to the State Bank of Pakistan. The government wants to increase reserves to $15 billion by the end of this year.
The International Monetary Fund is expected, pending a review by its executive board next month, to release a $1.1 billion tranche of a $6.6 billion loan to Pakistan.
http://online.wsj.com/articles/pakistan-issues-1-billion-of-bonds-1417113745
