Pakistan intends to become a regular issuer of international bonds after two remarkably successful experiments during the last twelve months. Advisor to Prime Minister on Finance Dr Salman Shah said on Saturday the money received from Sukuk bond issue would be used for paying expensive debts and raising dollar reserves.
State minister Omar Ayub, finance secretary Naveed Ahsan and economic advisor to finance ministry Dr Ashfaq Hasan Khan were also present on the occasion.
"We want to go to international bond market every year," Dr Salman Shah said, adding: "The money from this issue would be used for paying expensive debt and raising forex reserves."
The reason of yearly visit would be to exploit opportunities for investors coming for foreign direct investment, Dr Shah said.
The team returned after issuing $ 600 million Islamic bond 'Sukuk', which was backed by the Islamabad-Lahore Motorway owned by the National Highway Authority (NHA) to comply with Islamic principles.
The government has established a new company called Pakistan International Sukuk Company Limited, which would issue the trust certificates, known as Ijara (leasing), through the lease agreement.
The NHA income from the motorway would be used to service the bonds return. On dissolution, the government will undertake irrevocably to purchase the land at the agreed exercise prices form bondholders, Dr Shah explained.
This Islamic bond issue backed by mega assets has paved the way for issuing bonds for any mega project like dams, etc., he said.
Regarding the recent issue, he said out of $ 1.2 billion bids, 60 percent investment came from Middle East followed by European (22 percent) and Far East (18 percent).
However, the allocation had a bent in favour of the Middle East for 47 percent, Far East (31 percent) and Europe (22 percent). Only 11 percent of the Eurobond issue was allocated to the Middle East.
Explaining fixation of rate of return on the bond issue, Dr Shah said the benchmark of Pakistani Eurobond issue was the current traded rate at 220 basis points above London Inter-Bank Offered Rate (Libor) (Eurobonds were issued at 375 basis plus US Treasury rate that equates 340 basis points above Libor).
Investors made the Pakistani authorities believe that its fundamentals are better than its rating.
It helped them keeping low rate of return. After receiving such a big bid of $ 1.2 billion, all premiums were waived and issue rate was fixed at 220 over Libor, which is 2.8 percent now, making the effective rate around 5 percent.
He also explained in detail the country's economic situation, avoiding any slip of tongue regarding risks or vulnerable aspects. He was assisted by Dr Ashfaq. He even said the situation of Balochistan would not hurt investors' confidence even in Balochistan.
He said the story of achieving 7-8 percent GDP growth was believable when they were told that public debt nosedived from over 100 percent to 68 percent during the last four to five years, adding growth rate would dent poverty.