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IFR-Pakistan plans return to international capital markets
Mon Apr 25, 2011 11:15am EDT
by Shankar Ramakrishnan
SINGAPORE, April 25 (IFR) - The Islamic Republic of Pakistan is gearing up for its second attempt to launch an offshore exchangeable bond.
The Privatisation Commission has invited banks to bid for the mandate to arrange the sale of bonds exchangeable into Oil and Gas Development Co (OGDCL) (OGDC.KA) shares with the aim of raising more than US$500m.
The deal would mark the country's return to the international capital markets for the first time since June 2007, and success would come as a vote of confidence in the country after its IMF-led restructuring. While potentially a difficult deal to price, interest in the mandate is high: bankers from Asia's biggest equity-linked houses are heading to Islamabad to pitch on April 30.
Pakistan was forced to shelve a similar deal in 2008, but this time hopes to present a picture of an improving credit even as it grapples with huge deficits and continued political instability.
"We are hoping to tell the story of Pakistan's economy during the global roadshows for this exchangeable bond. Pakistan had a current account surplus in the first nine months of the year, which is a big improvement since 2008," said Wasar Satti, consultant for capital markets at the Privatisation Commission.
"We are determined to go through with this fundraising this time around, and all the relevant stakeholders including regulators are on board and in agreement on the need for this fundraising."
Pakistan had mandated banks for a US$750m-$1bn exchangeable bond in 2008, but then decided to postpone it amid the global financial crisis, a rising budget deficit and mounting political instability.
"The economy is in a much better shape than in 2008, when we went through a currency crisis and the global financial crisis had an adverse impact on our domestic markets," said Satti.
Pakistan's five-year CDS touched a high of 3,475bp in October 2008, but last week it was quoted at around 835bp.
The government had initially considered a Eurobond but decided against it and instead opted for a bond issue that would give investors exposure to the in-focus oil and gas sector.
OGDCL is the national oil and gas company of Pakistan and the local market leader in terms of reserves, production and exploration acreage. It is listed on all three stock exchanges in Pakistan and was floated on the London Stock Exchange in December 2006.
"The exchangeable bond allows the government to capture the equity upside potential of OGDCL. The equity upside story in itself is likely to attract a host of global investors," said Satti. The ministry, he said, had not yet firmed up the terms it wanted to achieve on the exchangeable bond and hoped to be given a range of options from banks at a meeting on April 30.
Four groups of banks will pitch for the mandate: Bank of America Merrill Lynch, Barclays Bank, Standard Chartered Bank and KASB; HSBC, BNP Paribas, UBS, NIB and NBP; Citibank, JP Morgan, Credit Suisse and BMA; and Nomura, Deutsche Bank and Silk Bank.
Bankers were mixed in their opinions on the likely response to a deal from Pakistan. One banker said the fees from such a deal would hardly be worth the effort, expressing doubts as to whether Pakistan would eventually decide to go ahead with the deal.
Some bankers, however, saw it as a great diversification opportunity for equity-linked investors, adding that the scarcity factor should play a major role in ensuring decent interest for the bonds at the right price.
"The trick, however, is that the bonds should be cheap enough to attract investors," said one banker.
Some bankers estimated that Pakistan could get away with bonds that offered a 7%-8% coupon and a conversion premium in the 20%-25% area.
"This is clearly not an easy deal for any bank involved and at the end of the day it all boils down to the political will to go ahead and test the waters. Fingers crossed, all the pitching effort will end up in something," said another banker.
"CB investors are keen to invest at the moment because they are making money on the deals they have bought recently. Despite all the noise about a crisis, the market seems in very reasonable shape, so this is probably the best time for Pakistan to raise some much-needed cash to fund its deficits," said a third banker.
(Shankar Ramakrishnan is deputy editor, IFR Asia)
Mon Apr 25, 2011 11:15am EDT
by Shankar Ramakrishnan
SINGAPORE, April 25 (IFR) - The Islamic Republic of Pakistan is gearing up for its second attempt to launch an offshore exchangeable bond.
The Privatisation Commission has invited banks to bid for the mandate to arrange the sale of bonds exchangeable into Oil and Gas Development Co (OGDCL) (OGDC.KA) shares with the aim of raising more than US$500m.
The deal would mark the country's return to the international capital markets for the first time since June 2007, and success would come as a vote of confidence in the country after its IMF-led restructuring. While potentially a difficult deal to price, interest in the mandate is high: bankers from Asia's biggest equity-linked houses are heading to Islamabad to pitch on April 30.
Pakistan was forced to shelve a similar deal in 2008, but this time hopes to present a picture of an improving credit even as it grapples with huge deficits and continued political instability.
"We are hoping to tell the story of Pakistan's economy during the global roadshows for this exchangeable bond. Pakistan had a current account surplus in the first nine months of the year, which is a big improvement since 2008," said Wasar Satti, consultant for capital markets at the Privatisation Commission.
"We are determined to go through with this fundraising this time around, and all the relevant stakeholders including regulators are on board and in agreement on the need for this fundraising."
Pakistan had mandated banks for a US$750m-$1bn exchangeable bond in 2008, but then decided to postpone it amid the global financial crisis, a rising budget deficit and mounting political instability.
"The economy is in a much better shape than in 2008, when we went through a currency crisis and the global financial crisis had an adverse impact on our domestic markets," said Satti.
Pakistan's five-year CDS touched a high of 3,475bp in October 2008, but last week it was quoted at around 835bp.
The government had initially considered a Eurobond but decided against it and instead opted for a bond issue that would give investors exposure to the in-focus oil and gas sector.
OGDCL is the national oil and gas company of Pakistan and the local market leader in terms of reserves, production and exploration acreage. It is listed on all three stock exchanges in Pakistan and was floated on the London Stock Exchange in December 2006.
"The exchangeable bond allows the government to capture the equity upside potential of OGDCL. The equity upside story in itself is likely to attract a host of global investors," said Satti. The ministry, he said, had not yet firmed up the terms it wanted to achieve on the exchangeable bond and hoped to be given a range of options from banks at a meeting on April 30.
Four groups of banks will pitch for the mandate: Bank of America Merrill Lynch, Barclays Bank, Standard Chartered Bank and KASB; HSBC, BNP Paribas, UBS, NIB and NBP; Citibank, JP Morgan, Credit Suisse and BMA; and Nomura, Deutsche Bank and Silk Bank.
Bankers were mixed in their opinions on the likely response to a deal from Pakistan. One banker said the fees from such a deal would hardly be worth the effort, expressing doubts as to whether Pakistan would eventually decide to go ahead with the deal.
Some bankers, however, saw it as a great diversification opportunity for equity-linked investors, adding that the scarcity factor should play a major role in ensuring decent interest for the bonds at the right price.
"The trick, however, is that the bonds should be cheap enough to attract investors," said one banker.
Some bankers estimated that Pakistan could get away with bonds that offered a 7%-8% coupon and a conversion premium in the 20%-25% area.
"This is clearly not an easy deal for any bank involved and at the end of the day it all boils down to the political will to go ahead and test the waters. Fingers crossed, all the pitching effort will end up in something," said another banker.
"CB investors are keen to invest at the moment because they are making money on the deals they have bought recently. Despite all the noise about a crisis, the market seems in very reasonable shape, so this is probably the best time for Pakistan to raise some much-needed cash to fund its deficits," said a third banker.
(Shankar Ramakrishnan is deputy editor, IFR Asia)
