MoF Accepts SBP Conditions Regarding PKR-Linked ADB Bonds

Sources told Pak Revenue that the Ministry of Finance officially ‘accepted’ conditions for issuing offshore Pakistan Rupee (PKR)-linked Asian Development Bank (ADB) bonds worth $200 million to non-residents on the basis of favorable market conditions.

ADB yields can be below the yield curve of domestic Pakistan government bonds in the range of -0.50 to -2.00%.

In its meeting of 15 July 2020, the Economic Coordination Committee (ECC) granted, in principle, the approval of the Finance Division’s summary to allow ADB to launch offshore Pakistan Rupee (PKR)-linked bonds for non-resident investors under the following directions:

1. Follow terms and conditions as suggested by State Bank of Pakistan for the proposed PKR-linked bond programme;
2.  Resubmit the case to the ECC for consideration, before the launch of the proposed programme.

Following the ECC’s instructions, the Finance Division consulted with SBP and incorporated the terms and conditions suggested by the central bank into the draft letter of authorization which would enable ADB to initiate the program.

SBP summarized the following terms and conditions for issuing PKR-linked bonds to foreign Offshore investors:

1. The programme will be restricted to maximum notional value of $ 200 million (equivalent) and with a minimum tenor of two years;
2.  PKR-linked bonds will be sold to non-resident investors only in the offshore markets;
3.  ADB will be allowed to buy or sell foreign exchange in the onshore FX spot market for the conversion of proceeds from the sale of ADB’s offshore PKR-linked bonds, for the financing of ADB operations in Pakistan and for payments to bondholders of ADB’s offshore PKR-linked bonds provided all foreign exchange transactions are entered into with an authorized dealer of Pakistan and backed by underlying transactions;
4. The proceeds of any offshore PKR-linked bonds will be brought onshore by ADB, and shall be used for the purpose of project financing in priority sectors such as infrastructure, housing, renewable energy, health, education, agriculture,  livestock, microfinance, banks and other financial institutions and other projects contemplated by the prevailing country partnership strategy or as otherwise agreed between ADB and the Government of Pakistan;
5. For liquidity management, ADB may open deposit/securities accounts in Pakistan. ADB may also buy/sell PKR-denominated government securities of all tenors. ADB may also buy or sell corporate securities issued by the priority sector and;