Pakistan mandates three for new Eurobond

Pakistan seeks third international bond deal over the past two years.
The Islamic Republic of Pakistan has mandated Citigroup, Deutsche Bank and JPMorgan for a new international deal that is expected to launch in March. Although the mandate has yet not been formally announced, the market is expecting a benchmark $500 million to $1 billion five-year deal.

Pakistan's existing two bond deals have performed well in the secondary market and the country will be looking to take advantage of this, as well as build on momentum in its economic reform programme.

In February 2004, the government priced a $500 million five year fixed rate deal under the lead of ABN AMRO, Deutsche Bank and JPMorgan. The deal was priced at par on a coupon of 6.75% to yield 370bp over Treasuries or 335bp over Libor.

Today it is trading around 100.5% to yield about 190bp over Treasuries. Since then the Republic has also been upgraded from B- to B+.

In January 2005, Pakistan returned to the international markets with a $600 million Reg S Islamic Sukuk five-year FRN, which priced at 220bp over six-month Libor.

Observers expect the government to try and price the new deal as close as possible to its February 2009 deal. This should be made possible by the fact that the three to five-year curve is relatively flat.

As such the only issue will be what kind of new issue premium is needed. A number of market participants expect the deal to clear about 20-30bp wider at around 210bp to 220bp over Treasuries.

Since the military coup that installed General Perez Musharraf as President, analysts have praised Pakistan for the implementation of a sweeping reform programme. Reforms have included the privatization and restructuring of the banking sector, liberalization of the trade and exchange regime, and the continued divestment of key loss-making public enterprises.

As a result, GDP growth has accelerated to 8.4% in 2004/2005 from 2.6% in 1999/2000.