ADB issues first Pakistani rupee-linked bonds
The first issue of local currency bond called karakoram offers alternative to US dollar borrowing
19 Nov 2020 | Chito Santiago

The Asian Development Bank (ADB) has introduced a new funding option in Pakistan as it raised 1.83 billion Pakistani rupees (US$11.4 million) in the first issue of local currency karakoram bonds by a multilateral development bank in the country.

A karakoram bond is an offshore bond denominated in Pakistani rupees and settled in US dollars, listed on a major stock exchange and settled through an international central securities depositary.

The bond offering, announced on November 18, pays a semi-annual coupon of 7.50% and matures in August 2023. The transaction was arranged by Citi and the bonds were sold to European asset managers.

The net proceeds from the bond issuance will be included in ADB’s ordinary capital resources. Previously, ADB had no local currency loans in Pakistan, but this option will be offered in future projects as an alternative to dollar borrowing. The bank's local currency loans are expected to boost private sector development in Pakistan.

“Engineering local currency solutions is both an art and a science,” says ADB treasurer Pierre Van Peteghem. “Not only must we marry investor demand with market conditions to achieve optimal currency and interest rates, but we must also dedicate time and resources to a close dialogue with the government to achieve the best possible outcome.”

Abdul Hafeez Shaikh, the adviser to Pakistan’s prime minister on finance and revenue, describes the karakoram bond float as an excellent initiative and it will have significant mutually beneficial outcomes for Pakistan and ADB.

State Bank of Pakistan Governor Reza Baqir says ADB’s inaugural issue of karakoram bonds will help deepen the capital markets of Pakistan while channeling funding to vital economic sectors.

In issuing the first Pakistani rupee-linked bonds, ADB says it appreciates the support provided by the State Bank of Pakistan to facilitate coordination with the government to successfully start this programme. The bank is a regular borrower in the mainstream international bond markets and has also led issuances in developing Asian countries as part of its efforts to promote local currency bond markets as an alternative to bank lending.

ADB has already issued local currency bonds in Indian rupees, Kazakhstan tenge and Mongolian togrog in 2020. It raised 8.5 billion rupees (US$118 million) from a new issue of offshore Indian rupee-linked bonds for 10 years in February this year. This represented ADB’s first new maturity raised in Indian rupees since 2017 and contributes to an established yield curve, which stretches from 2021 through 2030 with 72.4 billion rupees of outstanding bonds.

The issue sets a new benchmark in the 10-year offshore rupee market, with the bonds bearing a semi-annual coupon of 6.15% and priced to yield 6.19%. The bonds, which are settled in US dollars, were underwritten by J.P. Morgan and primarily distributed to investors in the Americas (21%) and Europe (79%). By investor type, 28% of the bonds were placed with banks and 72% with fund managers.

In a groundbreaking initiative, ADB made a dual listing of the bonds on the Global Securities Market of India International Exchange (India INX) and the Luxembourg Stock Exchange – the first time a foreign issuer is doing a primary listing with India INX.

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