Pakistan likely to shelve foreign bonds plan till year end

Pakistan is likely to delay a plan to sell sovereign bonds in international capital markets till this yearend due to weak investor appetite amid the pandemic and availability of low-cost foreign inflows from multilateral and bilateral creditors for the country, people familiar with the matter said.

Analysts said the flotation of Eurobonds, including Chinese Yuan-denominated bond would be postponed. The government, in the budget 2019/20, unveiled a plan to raise $3 billion by issuing sovereign bonds this fiscal year.

The process of issuing a planned $1 billion Panda bond was underway and the government was prepared to float that deal in the mainland capital market somewhere in the first quarter of 2020.

The consortium of four banks, Habib Bank Limited, Citibank, CITIC and China Development Bank was working on the deal as financial adviser and lead manager.

"Countries around the world are focused on managing the fallout of the COVID-19 pandemic on their own economies and on reviving domestic economic activities," said Muhammad Aurangzeb, president and chief executive officer of HBL. "International bond issuance is essentially on hold as a result of this change in priorities in international markets."

Aurangzeb further said the pandemic related logistics (credit rating agency meetings, / road shows/ legal discussions etc.) are further delaying the bond issuance. "We expect movement on this front only once the global economic climate settles down a little bit. We expect this to pick up in Q4 2020 again."

A source close to the Chinese bond deal said the government and the State Bank of Pakistan were advised before the pandemic not to issue the Panda bonds, "as it no longer made sense now that we have enough RMB in our reserves and secondly, Panda bonds under the current format of tapping the secondary market in China would be too expensive".

"It simply would not be prudent for Pakistan from an economic management point of view," said the source. "Eurobonds, when the market gets back to normal conditions, would be the appropriate step to undertake first."

The government isn't in the rush to raise funds via international debt market as it has secured $1.4 billion in emergency financing from the IMF, which would help the country meet the balance of payments needs emerging from virus shock.