11/24/2004 3:00:00 PM GMT
Source: International Herald Tribune
Pakistan is planning to sell its first Islamic bonds by the beginning of next year as it seeks to tap the increasing demand for securities that comply with the Islamic law, Prime Minister Shaukat Aziz said.
The government might sell $300 million to $500 million of Islamic securities with a maturity of five years, said a banker familiar with the sale, who demanded anonymity. The planned sale will be the country’s second public overseas debt offering since 1997.
"We will probably come to the market in December or January," Aziz, a former Citigroup executive, said. "It's certainly in the funding program for this year."
Pakistan wants to raise funds to increase the percentage of its economic growth, control its fiscal deficit and develop its debt market by selling the Islamic bonds, which conform to Muslim law that bans payment of fixed interest. Islamic funds, which do not invest in alcohol, gaming and tobacco companies, stand at about $250 billion worldwide.
"There will be huge demand for the bonds," said Ben Yuen, head of fixed income at First State Investments in Hong Kong. "There's a lack of supply of such bonds and Islamic investors are looking for that kind of vehicle."
Malaysia was the first country to sell dollar-denominated Islamic securities in 2002. Afterwards, Qatar, Bahrain, the German state of Saxony-Anhalt and Dubai started selling Islamic bonds.
Shaukat Aziz said that Pakistan is planning to sell more foreign currency bonds by next year. "It is our policy to go to the euro market once every year to maintain the linkage with the investor base globally," he said. "When we came with the $500 million issue, investors were very supportive."
He also said that the funds may be used to control Pakistan's deficit. "By bringing this level of deficit down, we have reduced our dependence on debt," the minister said. "We are now more self-reliant than we have ever been."
On Monday, Standard & Poor's raised Pakistan's ratings by one level, due to the country's declining debt and debt-servicing burdens as well as its economic growth. The prospect for growth "remains encouraging," Standard & Poor's said.