ISLAMABAD: The federal cabinet has allowed in principle, Water and Power Development Authority (Wapda) to issue $ 500 million debut Eurobonds, subject to necessary modalities to be finalized at par with similar securities in consultation with Finance Division and State Bank of Pakistan, sources close to Secretary Water Resources told Business Recorder.
Wapda was currently undertaking a challenging and mammoth task of developing two priority projects of Diamer Basha Dam Project (DBDP) and Mohmand Dam Hydropower Project (MDHP) and construction activities were under way. PC-Is for DBDP and MDHP were approved by ECNEC in November, 2018 and April 2018, with foreign exchange components (FEC) of $ 1.4625 billion (Exchange Rate 1$ = Rs 105.3) and $ 638.4 million (Exchange Rate 1$ = Rs 112.068), respectively.
As per the financial model given in the approved PC-Is, an amount of approximately $ 2.025 billion was to be raised through foreign commercial borrowing. Implementation of these projects was in full swing and invoices, including foreign currency component against the ongoing works, were being generated. In order to arrange the required foreign financing, Wapda was embarking upon a multi-pronged strategy, which included assistance from multilateral donor agencies/friendly countries, syndicate loans and Eurobonds.
Wapda approached AIIB and Middle-Eastern donors through Economic Affairs Division (EAD) to access concessional financing on competitive terms. Final outcome was yet to be decided. Regarding syndicate loans, it was highlighted that these loans were available for a tenor of 1-2 years at best. Such short tenor loans did not' synchronize with the implementation periods of the projects, which was 60 months for DBDP and 86 months for MDHP. The Eurobond is thus a natural instrument of choice as its tenor of 7-10 years closely matches the long gestation period of these projects. It would diversify the liquidity pool of Wapda and markets would be accessed in a phased manner as a regular feature as per the drawdown needs of the projects.
The sources said the issuance of Eurobonds involves several steps starting from conducting Non-Deal Road shows (NDR). Other steps included obtaining international credit rating, hiring of Global Coordinator/Lead Arranger, appointing the transaction parties (legal counsel, Trustee, listing venue etc.) and preparing prospectus & legal documentation etc. Wapda, with the approval of the Prime Minister, conducted NDRs for the purpose in July-August 2018 and April 2019, in Far-East, Dubai and the UK.
During this process, a total of 57 institutions, comprising leading international institutional investors, hedge funds and insurance companies, with assets under management ranging from a few billion to trillions of dollars were approached. Notable companies included PIMCO, Blue Ray, Goldman Sachs, Aventicum, Man Group, Investec Asset Management, Ashmore, Franklin Tempton, Eaton Vance etc. Subsequently, Wapda obtained Letter of Comfort from Finance Division for its credit rating process, as investors heavily rely on the assessment of the rating agencies in gauging the credit worthiness of the issuer. Wapda took pride IN the fact that all top three international credit rating agencies including Fitch, S&P and Moody's unanimously assigned Wapda a Long-Term Foreign and Local-Currency Issuer Default Rating at 'B-' with stable outlook. Equalization of Wapda with the Federal Government which was the highest rating achievable by any agency in Pakistan would immensely help Wapda in securing financing at most favourable terms.
After securing a favourable credit rating, Wapda initiated the process of hiring the lead arranger/global coordinator and co-book runners through a competitive bidding process. Five leading international banks i.e. Credit Suisse, Deutsche Bank, JP Morgan, Standard Chartered and Citibank submitted proposals.
On the basis of evaluation results, which gave weightage to global distribution capabilities and the strength of the syndicate desks of the banks, a consortium of three banks has been formed by Wapda, with JP Morgan as the Global Coordinator, which was the biggest international bank with unmatched credentials in bond issuances, and other two banks - Standard Chartered and Deutsche Bank - as co-bookrunners.
The idea behind developing a consortium of three banks was to take full advantage of increased distribution and marketing capabilities and to minimize the execution risk for Wapda's debut $ 500 million Eurobond issuance.
The sources maintained that on the advice of the selected consortium, Baker & McKenzie and Allen & Overy had been appointed as international legal counsel. The pricing rationale proposed by the co-bookrunners had indicated a spread in the range of 40-60 basis points (bps) over the sovereign curve. Currently, work was under way for completing issuance prospectus and instrument credit rating. Given the favourable feedback from the consortium, Wapda would target the post-Christmas window in January 2021, for the launch of $500 million Eurobond.
The Ministry of Water Resources submitted the following proposals for approval of the in terms of Section 24 of WAPDA Act, 1958 and Rule 16(1)(d) of the Rules of Business, 1973: (i) issuance of $ 500 million Eurobond (under Green or conventional structure) for Regulation-S international bond offering by Wapda and;(ii) exemption for Income Tax under clause 75 of Part I of the Second Schedule to the Income Tax Ordinance 2001.
During the ensuing discussion, the Governor State Bank of Pakistan, Dr Reza Baqir, endorsed the proposal. However, he stated that since this was a debut bond to be issued by Wapda, necessary modalities thereon may be finalized at par with similar securities in consultation with Finance Division and State Bank of Pakistan.
The sources said the ECC approved, in principle, the proposal with the direction that Ministry of Water Resources "shall" finalize modalities of repayment in consultation with Finance Division and State Bank of Pakistan.
Copyright Business Recorder, 2020
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