Pakistan’s investment climate will be tested this week as its largest cement maker markets a $150 million global depository receipt (GDR) in the US – the first deal since political crisis erupted in June last year.
Lucky Cement pitches to US investors from today, after being on the road in Dubai, Singapore, and London last week. The company is banking on the government’s infrastructure investment programme, and strong regional demand, to buoy its growth this year.
Pakistan’s finance minister Ishaq Dar yesterday promised to go ahead with a sovereign bond issue when markets improve – but “pricing is not right now”, he said at an Emerging Markets Asia lecture in Madrid yesterday. A sovereign convertible bond was cancelled last month.
Lucky Cement’s GDR offering has been postponed for six months in the wake of violent domestic unrest that led to president Pervez Musharraf’s imposition of emergency rule in November and the assassination of opposition leader Benzair Bhutto in December. The volatility caused issuers to shelve GDR plans, and the last offering was United Bank’s $653 million deal in June 2007.
Foreign portfolio investors have shunned exposure to Pakistani assets with the country receiving no net portfolio flows between July 2007 and March this year, according to the IMF.
The Lucky Cement deal ends on May 7. Merrill Lynch is sole global coordinator and bookrunner, and Karachi-based KASB Securities is financial adviser.
This offering will test the interest of long-term real cash investors – particularly in the US, where the government is mulling its attitude to the new Pakistani administration, which is hostile to Musharraf’s rule.
Around half of the institutional investors and hedge funds present at the roadshows had no previous exposure to Pakistani assets, but appetite for the offer was strong, a banker close to the deal said.
“Pakistan has gone through a lot of turmoil, but that has ended now for several months. Investors feel comfortable with the political risk,” he added.
Nasim Beg, CEO of Arif Habib Investments – which holds Lucky Cement domestic shares and plans to take advantage of arbitrage opportunities when the GDR lists on the London Stock Exchange – said: “This deal will help put Pakistan back on the screens of foreign investors.”
Market participants are confident the government will restart the stalled privatization programme. It could raise $3.5 billion this year by selling shares in state-owned institutions including Kot Adu Power, Habib Bank and the National Bank of Pakistan.
In an interview with Emerging Markets, Finance minister Dar underlined that high transparency standards would be set for privatizations. Some transactions had been challenged in the past, leading to an “erosion of the credibility of the process”, but the policy governing sell-offs would not change.