Pakistan is in deep debt distress. It was already in trouble as a result of Covid expenditures and political mismanagement. But the recent floods made things dramatically worse. A debt restructuring is therefore likely, if not imperative (protestations of government officials notwithstanding).
Some relief has come in the form of IMF and ADB financing, but, as the market recognises, that additional debt is just making the hole Pakistan will need to dig itself out of even bigger. Pakistan’s credit rating is in junk land and its bonds are trading at deep discounts to their par value.
We’ve been looking at the fine print of Pakistan’s foreign currency bonds. Initially, we were interested in the sukuk bonds, since we’ve never seen a sovereign sukuk restructured. But we stumbled across a plain vanilla sovereign bond that strikes us as anything but vanilla.
Pakistan’s 2024 dollar bond — issued in 2014 — has at least two odd characteristics that could spell trouble in a restructuring.
Citation
G. Mitu Gulati & Mark Weidemaier, Pakistan’s deeply funky bonds, Financial Times (FT.com) (October 31, 2022).