ISLAMABAD, 23 February 2004 — Eurobonds are a $2 billion question that Ministry of Finance is having to answer.
While Finance Minister Shaukat Aziz cannot hide his delight over the huge overseas oversubscription that is offering $2 billion against the float of just $500 million, his ministry is attracting criticism here at home.
This is for the first time during Aziz’s four years of savvy stewardship of the Ministry of Finance (MoF) that a range of critics are in the field against the Eurobonds’ London float, on Feb. 12. The critics include opposition politicians, capital market representatives and independent economists. Their arguments are several, despite initial rebuttle by Aziz.
The government of Pakistan has floated $500 million worth Eurobonds, at a fixed price of 6.75 percent for five years maturity. Replying to the domestic criticism, Aziz says, “I am confident, what we have got in the shape of fixed rate of 6.75 percent, for five years maturity, is far better than what we, or the lead managers of the bond were expecting. But, in order to silence the critics, I want to tell you, this is not the end. We will continue to take this issue to international markets to get even better pricing.” Pakistan has previously issued Eurobonds in 1994.
Aziz says, Islamabad will go for “swapping our Eurobond issue to floating rate that will help bring down the pricing by a minimum of two percent, to 4.75 percent, from the existing 6.75 percent.”
What attracted investors to these bonds? Islamabad’s improved credit ratings by international agencies, and 200 potential investors who attended the road shows and marketing of the bonds by the lead managers, led to the oversubscription. The arrangement for swapping of Eurobonds pricing from the fixed rate to floating rate has started. In around a fortnight, bids for swapping from international financial houses and banks will be received.
Twelve International banks and investment companies had offered for issuance of the bonds. Four out of these were short listed as lead managers. They included ABN Amro Bank, JP Morgan, Union Bank of Switzerland (UBS) and Deutsche Bank.
In order to go ahead with the swap from a fixed to a floating rate, the government is examining whether the present low US interest rates, US Treasury rates, and London interbank offered rate (LIBOR) will sustain?
Critics see no justification in raising funds through bonds at a time when Pakistan’s forex reserves are more than a record $12 billion. The amount is equal to one year’s imports.
