Pakistan kicks off Asian bond deals

Pakistan kicks off Asian bond deals

Dow Jones, Singapore

Pakistan has sold US$600 million in U.S. dollar-denominated Islamic bonds, kicking off Asian sovereign bond issuance for the year.

Indonesia is now assessing fund-raising ideas submitted by bankers at the end of last week, and the Philippines is widely expected to come to the market in February.

Most other countries in the region -- including China and South Korea -- are also set to return with hefty benchmark issues.

"We were targeting $200 million to $300 million, but we were encouraged by the response we received, which is about $1.2 billion," Waqar Masood, special assistant to Prime Minister Shaukat Aziz, said on Tuesday in Islamabad.

Pakistan's five-year deal attracted orders from 82 accounts and was priced below its existing 2009 fixed-rate Eurobonds, if the longer maturity is taken into account -- indicating investors were attracted to, rather than shaken by, the Islamic structure.

"The backbone of this deal was the Middle Eastern accounts, and the sukuk structure. Where else would they get access to a Pakistan credit?" said John Lefevre, Asia debt syndicate at Citigroup Inc. in Hong Kong.

Pakistan's $500 million Eurobond, sold this time last year, was trading around 216 basis points over Libor on Tuesday.

Under Islamic law, or Shariah, the payment of interest is banned. The Pakistan deal used the most typical "sukuk" structure, whereby property is leased or sold to a special purpose vehicle, which then sells trust certificates to investors. In Pakistan's case, the bond was backed by highway land.

Lead managers Citigroup and HSBC sold the debt at par to yield 220 basis points over the six-month London Interbank Offered Rate. That was at the bottom end of revised guidance of 220 to 225 basis points over Libor indicated earlier in the day.

The two banks had originally offered the bonds at a spread of 220 to 235 basis points over Libor.

Demand for the debt was widespread. The bond was distributed 47 percent to the Middle East, 31 percent to Asia and 22 percent to Europe. At over $250 million, the Asian order book was "pleasantly surprising," said a banker familiar with the deal.

Part of the attraction was the rarity of Pakistan debt. Many investors also believe the country is underrated at B2 by Moody's Investors Service and B+ by Standard & Poor's Ratings Services. The primary market has also been quieter than expected.

"The supply we have seen so far this year is probably not what people had expected. January has been a tad slower than expected, although I think February will be busier," said one market player. Pakistan's deal is only the third international bond from Asia this year after much smaller corporate offerings from Universal Robina Corp. of the Philippines and City Telecom Ltd.

The latest fund raising is Pakistan's second international effort since a 1999 debt restructuring.