Govt to Borrow $3 Billion Through Sukuk & Eurobonds

The government is set to borrow $3 billion from international debt markets as country’s outstanding payments continue to grow. The current government took $35 billion in loans in the past four years, which is highest by any government since the Pakistan’s inception.

This step will only add to the country’s ever increasing burden of loans and interest rates which have already crossed 100,000 per Pakistani citizen.

Read More: Pakistan’s Foreign Debt Will Soon Cross a Staggering $75 Billion

The government will float the money as bonds to take some heat off from the central bank’s reserves. Previously, $2 billion were borrowed by the government for similar purposes. Two Eurobonds and one Sukuk bond will be issued as per reports from the finance ministry. Durations of Sukuk and two Eurobonds are 5 years, 10 and 15 years respectively.

Tax Waived

The government has renounced several taxes in an attempt to attract investors’ attention. Finance ministry says:

If these taxes are not exempted, the transaction cost will make Sukuk issue undesirable for international investors, resulting in higher pricing for the country.

Following taxes have been waived by the ministry;

  • minimum 1% income tax,
  • Profit on debt,
  • advance tax,
  • taxes on payment of contract fee to financial advisers,
  • dividend tax,
  • taxes on the auction and purchase of immovable property
  • taxes on payments to non-residents,
  • taxes collected by the Pakistan Stock Exchange and National Clearing Company of Pakistan,

The ministry hopes that reduced taxes will receive a good response from investors and make the market more favorable.

Interest rate

The bond transactions at an interest rate ranging from 6.875% to 7.125% are considered feasible for markets like Pakistan’s. Pakistan rolled out Sukuk bonds at a low 5.5% last year, while in what is said to be the most expensive deal, the Eurobond stood at 8.25% interest rate.

30 year Eurobond will be floated for the first time in country’s history. It will be sold based on what interest rate the investors are seeking them for.

Banks Appointed for Transaction

Following banks have been recommended for bond transactions

For Eurobond

  • Industrial and Commercial Bank of China,
  • Deutsche Bank
  • Standard Chartered Bank,
  • Citibank

For Sukuk

Finance Division will incorporate Pakistan International Sukuk Company Limited for Islamic bond (Sukuk) transactions. Other banks include;

  • Industrial and Commercial Bank of China,
  • Deutsche Bank
  • Standard Chartered Bank,
  • Dubai Islamic Bank
  • Citibank
  • Noor Bank

The bonds will reportedly be launched in mid-November 2017. Expos will be held in US, UK, Hong Kong, Dubai and Singapore to advertise the bonds and bring in foreign investors.

Via: Tribune

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