Bonds rally according to Goldman Sachs forecasts

KARACHI:

Responding to Goldman Sachs’ forecast of a recovery in Pakistan’s US dollar eurobond, the top foreign bond maturing in April 2024 and others maintained an uptrend for the second consecutive business day on Friday. This marks a partial recovery from the roughly 5% drop following the post-election shakeup.

In a story titled “Goldman Sachs sees end to Pakistan bond sell-off on IMF outlook”, Bloomberg reported on Thursday that “Goldman Sachs Group Inc says Pakistan’s dollar-denominated bonds will recover, overcoming a breakout electoral mandate, as the leaders of the emerging coalition understand the severity of the economic crisis and we will work together to secure the assistance of the International Monetary Fund.”

Pakistan’s $1 billion 10-year Eurobond maturing in two months on April 15, 2024, rose 0.1 percent to 97.91 cents on Friday, according to a local research house. Pakistan has eight foreign bonds listed globally, totaling $7.8 billion, maturing between April 2024 and April 2051. Three of them, including the top one, maintained an upward trend, while the remaining five bonds fell on Friday.

Bloomberg further said the South Asian nation’s bonds rallied on Thursday, led by bonds maturing in April 2024, after the third-largest group in the new parliament pledged to support former prime minister Shehbaz Sharif’s return to office. Sharif, who already has a track record with the IMF, received a nine-month, $3 billion program from the multilateral lender last June. These gains helped offset post-election losses that had reached 5%.

The country faces a looming deadline to find the money to cover $25 billion in foreign debt payments from July, three times its foreign reserves. Its inflation is the highest in Asia, while the economy shrank last financial year. Investors require an additional 11.5 percentage points of yield over bonds to buy the country’s bonds, well above the 10 percentage points considered the risk threshold.

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Hubco is in talks to buy a stake in the Thar coal mine

The IMF announced that its team will visit Pakistan after the new government is formed to discuss a medium-term package. “We don’t see any of these stakeholders being cautious in the upcoming IMF negotiations,” said Dhiraj Bajaj, head of Asia and Emerging Markets debt portfolio at Lombard Odier, referring to the major political parties expected to form a new government. “The only way for them to succeed in staying in power is an IMF program and then to recover bilateral funding and meet their external obligations. We think this outcome bodes well for shorter and medium-dated US dollar bonds for now.”

Pakistan’s dollar bonds delivered some of the best returns in emerging markets last year, gaining over 90%. Goldman analysts warned that the outlook for Pakistan’s bonds beyond a near-term recovery would depend on global financial conditions. Investors will weigh the risk of sticky inflation in the US and a longer wait for Federal Reserve rate cuts, which will act as a brake on all troubled debt, including Pakistan, analysts wrote.

Hubco buys stake in Thar Coal

In a notification to the PSX on Friday, Hub Power Company said it has entered into a “definitive agreement” to acquire shares in Sindh Engro Coal Mining Company (SECMC), equivalent to approximately 9.5% of the issued and paid up share capital of SECMC, which is held by Habib Bank Limited. It is recalled that the power company had started takeover talks in mid-January 2024 to take part in the country’s top coal-rich mine that supplies the black gold to run power plants.

Published in The Express Tribune, February 17^u2024.

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