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Pakistan Raises $2.5 Billion in Dollar Debt as Reserves Fall

Pakistan raised $2.5 billion in dollar-denominated debt as it seeks to pump up foreign-exchange reserves.

Pakistan Raises $2.5 Billion in Dollar Debt as Reserves Fall
A portrait of Mohammad Ali Jinnah, Pakistan’s founder, is seen on a Pakistani one thousand rupee banknote. (Photographer: Asim Hafeez/Bloomberg)

(Bloomberg) -- Pakistan raised $2.5 billion in dollar-denominated debt as it seeks to pump up foreign-exchange reserves that have slumped 25 percent.

The South Asian nation issued $1.5 billion of 10-year notes at 6.875 percent after initial guidance in the low 7 percent area and $1 billion of 5-year sukuk at 5.625 percent, down from initial price talk of 6 percent, according to a person familiar with the deal. The country was targeting a sale of as much as $3 billion, Prime Minister Shahid Khaqan Abbasi said in a text message this week.

The $284 billion economy is struggling with political and economic turmoil. The government this week capitulated to a fundamentalist group that was seeking the resignation of the nation’s law minister, while an arrest warrant has been issued for Finance Minister Ishaq Dar for failing to attend court proceedings looking into corruption charges. The nation’s foreign-exchange reserves are lower than those of smaller neighbor Bangladesh.

Dar, who is on a medical leave of absence in London, has denied any wrongdoing.

“Given financing pressures, I wouldn’t be surprised if the government prioritized size over price,” Mark Baker, a Hong Kong-based money manager at Aberdeen Standard Investments, said earlier this week. Pakistan’s economic situation has become more challenging, with the fiscal and current-account deficits widening, he said.

Pakistan received more than $8 billion orders for the $2.5 billion bond offering, the finance ministry said in an emailed statement on Thursday. It priced the 10-year bond at a record low yield, it said

Pakistan Raises $2.5 Billion in Dollar Debt as Reserves Fall

The government raised $500 million from 10-year bonds at a yield of 8.25 percent in 2015, according to data compiled by Bloomberg. It also sold $1 billion of 10-year notes in 2014 at 8.25 percent, or 557.3 basis points over U.S. Treasuries. While spreads on those April 2024 bonds tightened significantly last year, they widened in recent months, touching 433 basis points in November, the most since Jan. 4.

The nation’s economy is showing signs of stress, with the current-account deficit more than doubling to $14.4 billion in the year through September. Foreign-exchange reserves held with the central bank dropped by 25 percent to $13.3 billion in the year to Sept. 30.

“Some additional premium is warranted to reflect Pakistan’s political and economic woes,” Nicholas Yap, a credit desk analyst at Nomura International (HK) Ltd. in Hong Kong, wrote in a report. Nomura recommends that investors participate with rates of at least 6.875 percent for the 10-year bond, and 5.7 percent for the Sukuk. “Most of the negatives have been priced in at current levels,” Yap said.

Citigroup Inc., Standard Chartered Plc, Deutsche Bank AG and Industrial & Commercial Bank of China Ltd. are managing the dollar bond offering, while Citigroup, Deutsche Bank, Dubai Islamic Bank PJSC, ICBC, Noor Bank PJSC and Standard Chartered are arranging the Sukuk.

S&P Global Ratings assigned a B rating, its fifth-lowest non-investment grade, to the bond.

--With assistance from Carrie Hong and Aline Oyamada

To contact the reporters on this story: Faseeh Mangi in Karachi at fmangi@bloomberg.net, Brian Smith in New York at bsmith373@bloomberg.net, Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net.

To contact the editors responsible for this story: Beth Thomas at bthomas1@bloomberg.net, Rita Nazareth at rnazareth@bloomberg.net, Neha D'silva

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