Pakistan expects to issue its second eurobond on better terms than the country''s recent forays into international capital markets, a senior government official said on Wednesday. Pakistan plans to finalise details of the issue in October and will sell eurobonds, denominated in either dollars or euros, by the end of the calendar year or at the beginning of 2006.
Ashfaque Hasan Khan, head of the Finance Ministry''s Debt Management Office, said the government expected the new bonds to be sold at much tighter spreads than two previous international issues - a 2004 eurobond and an Islamic bond early this year.
"We expect spreads will compress in the new issue as risk perception of Pakistan has improved on the back of robust economic growth of over 8 percent," he told Reuters.
"We know we can excite the international market as appetite for bonds is high."
Ashfaque said the government would finalise the terms, timing and size of the issue in October.
Pakistani officials have said the country does not need the cash but wants to develop a benchmark for international markets.
"There is no need for funds as our reserves are at an all-time high, but we are doing this to maintain links with investors globally," he said.
Foreign exchange reserves are hovering around a lifetime high of over $12.5 billion and the country is expecting economic growth of between 6-8 percent in the fiscal year ending June 30.
Analysts said the reserve position carried weight in negotiating better terms from commercial banks.
"PETRO-DOLLAR" Analysts expect the country would be able to borrow at between 180 basis points to 200 basis point over six-month LIBOR, as a number of the Middle Eastern investors, flush with petro-dollars, are eyeing Pakistan as a low risk investment.
"January and February will be the right time for the issue because fund managers in the Middle East decide their future investment plans at that time," an analyst at the KASB Securities Arshad Arif said.
Arif said the credit rating agencies were also likely to upgrade Pakistan''s rating by December given the improving fiscal situation, monetary policy and external account.
In November last year, Standard & Poor''s raised Pakistan''s long-term foreign currency credit rating by one notch to ''B+'' from ''B'', reflecting a decline in its debt and debt-servicing burdens as well as economic progress.
"If S&P improves Pakistan''s rating in December, it would definitely weigh on the pricing and would also attract investors," Arif said.