Furthermore, with the completion of a 30 year tranche, Pakistan becomes one of the fastest emerging market sovereigns to develop a long dated curve going from five-year to 30 year in only a two year timeframe. Comparably, it took the Philippines - one of AsiaÆs biggest sub-investment grade borrowers û four years to build its curve. While the likes of Brazil and Turkey took three years.
The 10 year tranche was priced at par on a coupon of 7.125%, or 239.6bp over US Treasuries.
The 30 year tranche priced also at par on a 7.875% coupon, equivalent to a spread of 301.8bp over US Treasuries.
The deal generated a lot of momentum when its roadshows reached Europe and the US and closed with an order book of $2 billion, a four-times oversubscription ratio. The final book closed with a total of 150 accounts taking part: of that, 120 were allocated 10 year paper and 50 were allocated 30 year paper. The book was split $1.3 billion in favour of the 10 year and $700 million for the 30 year.
Geographically, the 10 year was split 45% to Europea, 31% to the US and 24% to Asia. In terms of account type, fund and asset managers picked up 49%, banks 28%, insurers and pension funds 13%, with the remaining 10% going to retail, corporate and other accounts.
The 30 year book was split 42% Europe, 32% US and 26% Asia. By account type, fund and asset managers bought up half the total book, banks 27%, insurers and pension funds 18% and retail, corporate and other accounts 5%.
One of the notable points of the book is its relative exclusion of certain hedge funds - or so-called fast money fund accounts. Although the order book does include a select amount of trading accounts, they were largely absent from this deal, which marks a departure from the typical book structure of recent emerging market deals.
This can be largely attributed to the markets current volatility in the light of speculation over borrowing cost. This has been fuelled by a hefty increase in core US producer prices announced on Tuesday and Federal Reserve chairman Ben BernankeÆs optimistic outlook for the US economy. Indeed, short-dated treasury yields reached a 12 month high this week. Market consensus expects the Fed to raise its benchmark rate half a percentage point to 5% when it meets next Tuesday (March 28).
In February 2004, Pakistan priced a $500 million five year fixed rate deal under the lead management 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 to yield about 6.55%. Since then the Republic has also been upgraded from B- to B+.
At these current levels, PakistanÆs comparable 2009 to 2036 curve represents a differential of 132bp. The correspondingly ranked Philippines has a 2009 bond that is currently yielding at 5.55%, but has a 2031 bond trading at 7.66%, a curve of 211bp. Similarly, BrazilÆs outstanding 2009 is trading at 5.38% and its 2037 is trading at 6.95%, meaning its curve differential is 157bp.
Pakistan went into the market hoping to that its existing two bond deals had created created good will among investors. Both have performed well in the secondary market and the country looked to take advantage of this, as well as build on the momentum in its economic reform programme.
Analysts have praised Pakistan for the implementation of a sweeping reform programme. Reforms have included the privatisation and restructuring of the banking sector, liberalisation of the trade and exchange regime, and the continued divestment of key lossmaking public enterprises.
As a result, GDP growth has accelerated to 8.4% in 2004/2005 from 2.6% in 1999/2000.
